look like a dying cock stand situation....long term that is!
GIC to keep Citi stock
'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted one of the people familiar with the matter as saying. -- ST PHOTO: SAMUEL HE
THE Government of Singapore Investment Corporation (GIC) does not plan to convert its preferred Citigroup shares into common stock as part of a potential US government effort to help the ailing bank, the Wall Street Journal reported on Tuesday, quoting people familiar with the matter.
But GIC, a sovereign-wealth fund that has seen the value of its initial US$6.88 billion (S$10.5 billion) investment in Citigroup plunge in recent months, could face a dilemma if the bank reaches an agreement with US officials that includes a greater government role.
The WSJ reported on Monday that Citigroup is in talks with US officials that could give the US government a 40 per cent stake, although talks could still fall apart. The news cheered investors in several Asian markets because of the potential for greater stability in the financial sector if an agreement is reached.
But it also sparked wariness in other corners of Asia, both at the GIC and among market participants as they are concerned that greater US government participation could result in a pullback by the bank in favor of its domestic market, said WSJ.
A spokeswoman for GIC, and a spokesman for Citigroup in Hong Kong declined to comment.
As part of the plan, Citigroup officials hope to persuade some investors holding preferred shares to follow the government's lead in converting some of those stakes into common stock, according to people familiar with the matter. That would bolster a key measure of the bank's financial health.
Those investors include GIC and other sources of government-controlled wealth, such as Abu Dhabi Investment Authority and Kuwait Investment Authority. Representatives of the latter two didn't immediately comment.
GIC holds preferred shares in Citigroup that represent a beneficial 5.3 percent stake if converted, according to a US Securities and Exchange Commission filing late last month. The preferred shares offer an annual coupon of 7 per cent. Converting the preferred shares into common stock would cut off that income stream.
'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted one of the people familiar with the matter as saying.
But a greater US government role could increase pressure at Citigroup to halt dividend payments. If it then converted the preferred shares to common, GIC risks being diluted or wiped out if Citigroup needs another capital injection or is nationalised by the U.S. government.
GIC bought the convertible preferred securities in January 2008. Based on Citigroup's US$1.95 closing price on Friday, the stake is worth US$592.4 million. Citigroup shares were up 11 per cent to US$2.17 in midday trading Monday on the New York Stock Exchange.
GIC to keep Citi stock
'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted one of the people familiar with the matter as saying. -- ST PHOTO: SAMUEL HE
THE Government of Singapore Investment Corporation (GIC) does not plan to convert its preferred Citigroup shares into common stock as part of a potential US government effort to help the ailing bank, the Wall Street Journal reported on Tuesday, quoting people familiar with the matter.
But GIC, a sovereign-wealth fund that has seen the value of its initial US$6.88 billion (S$10.5 billion) investment in Citigroup plunge in recent months, could face a dilemma if the bank reaches an agreement with US officials that includes a greater government role.
The WSJ reported on Monday that Citigroup is in talks with US officials that could give the US government a 40 per cent stake, although talks could still fall apart. The news cheered investors in several Asian markets because of the potential for greater stability in the financial sector if an agreement is reached.
But it also sparked wariness in other corners of Asia, both at the GIC and among market participants as they are concerned that greater US government participation could result in a pullback by the bank in favor of its domestic market, said WSJ.
A spokeswoman for GIC, and a spokesman for Citigroup in Hong Kong declined to comment.
As part of the plan, Citigroup officials hope to persuade some investors holding preferred shares to follow the government's lead in converting some of those stakes into common stock, according to people familiar with the matter. That would bolster a key measure of the bank's financial health.
Those investors include GIC and other sources of government-controlled wealth, such as Abu Dhabi Investment Authority and Kuwait Investment Authority. Representatives of the latter two didn't immediately comment.
GIC holds preferred shares in Citigroup that represent a beneficial 5.3 percent stake if converted, according to a US Securities and Exchange Commission filing late last month. The preferred shares offer an annual coupon of 7 per cent. Converting the preferred shares into common stock would cut off that income stream.
'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted one of the people familiar with the matter as saying.
But a greater US government role could increase pressure at Citigroup to halt dividend payments. If it then converted the preferred shares to common, GIC risks being diluted or wiped out if Citigroup needs another capital injection or is nationalised by the U.S. government.
GIC bought the convertible preferred securities in January 2008. Based on Citigroup's US$1.95 closing price on Friday, the stake is worth US$592.4 million. Citigroup shares were up 11 per cent to US$2.17 in midday trading Monday on the New York Stock Exchange.
