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Citi looks to secure further $14bn in new capital
By Henny Sender in New York
Published: January 11 2008 22:02 | Last updated: January 11 2008 22:02
Citigroup is putting the final touches to its second big capital-
raising effort in as many months, seeking up to $14bn from Chinese,
Kuwaiti and public market investors.
Under the proposal being discussed, the bulk of the money - roughly
$9bn - would be most likely to come from China, people familiar with
the negotiations say. The Kuwait Investment Authority would contribute
about $1bn, while $2bn to $4bn would be raised through a public
placement of shares.
The deal underscores the depth of the problems faced by banks that
suffered heavy losses in the US subprime mortgage crisis. It would
follow an injection of $7.5bn into Citigroup by the Abu Dhabi
Investment Authority in late November.
"The second round is going very well, because Citi is seen as US Inc,"
says the regional head of a US investment bank in the Middle East.
Citi de-c-lined to comment.
As more US financial institutions raise capital from foreign sources,
largely from sovereign wealth funds, there is a growing debate about
the potential domestic political reaction, particularly during a
presidential election year.
The deal would mark the first time that the KIA has invested in an
ailing US financial institution. KIA, which is known as a conservative
investor, is taking a portfolio approach to the US financial crisis,
looking to acquire small stakes in many troubled financial firms
rather than putting a large chunk of money in one bank.
Staff at the KIA could not be reached for comment.
The deal highlights China's growing importance as an exporter of
capital. The Chinese government has emphasised a policy of investing
abroad to keep the ample liquidity in China from feeding a bubble in
shares and property.
"They want to recycle money as there is too much in China," says Fred
Hu, a China-based managing director at Goldman Sachs. "Because of
capital con-trols, only the government can take the money and put it
offshore."
The most likely Chinese investor in the Citigroup deal is probably a
bank such as China Development Bank, which in addition to funding
infrastructure projects at home also finances Chinese companies as
they expand abroad. The company, which is not listed, also has taken
shares in financial institutions such as Barclays.
Another possibility would be an investment arm of the government,
although the distinction between government and quasi-private money is
often blurred in China.
Other potential Chinese investors include China Investment
Corporation, which invests China's res-erves abroad, and recently put
$5bn into Morgan Stanley. China's State Administration of Foreign
Exchange also invests directly offshore.
Citi's capital-raising structure differs from the first round. That
involved a complex security that converts into Citi shares with a
generous 11 per cent coupon.
Copyright The Financial Times Limited 2008.
http://www.ft.com/cms/s/0/c6eb81e0-c083-11dc-b0b7-0000779fd2ac.html?nclick_check=1
By Henny Sender in New York
Published: January 11 2008 22:02 | Last updated: January 11 2008 22:02
Citigroup is putting the final touches to its second big capital-
raising effort in as many months, seeking up to $14bn from Chinese,
Kuwaiti and public market investors.
Under the proposal being discussed, the bulk of the money - roughly
$9bn - would be most likely to come from China, people familiar with
the negotiations say. The Kuwait Investment Authority would contribute
about $1bn, while $2bn to $4bn would be raised through a public
placement of shares.
The deal underscores the depth of the problems faced by banks that
suffered heavy losses in the US subprime mortgage crisis. It would
follow an injection of $7.5bn into Citigroup by the Abu Dhabi
Investment Authority in late November.
"The second round is going very well, because Citi is seen as US Inc,"
says the regional head of a US investment bank in the Middle East.
Citi de-c-lined to comment.
As more US financial institutions raise capital from foreign sources,
largely from sovereign wealth funds, there is a growing debate about
the potential domestic political reaction, particularly during a
presidential election year.
The deal would mark the first time that the KIA has invested in an
ailing US financial institution. KIA, which is known as a conservative
investor, is taking a portfolio approach to the US financial crisis,
looking to acquire small stakes in many troubled financial firms
rather than putting a large chunk of money in one bank.
Staff at the KIA could not be reached for comment.
The deal highlights China's growing importance as an exporter of
capital. The Chinese government has emphasised a policy of investing
abroad to keep the ample liquidity in China from feeding a bubble in
shares and property.
"They want to recycle money as there is too much in China," says Fred
Hu, a China-based managing director at Goldman Sachs. "Because of
capital con-trols, only the government can take the money and put it
offshore."
The most likely Chinese investor in the Citigroup deal is probably a
bank such as China Development Bank, which in addition to funding
infrastructure projects at home also finances Chinese companies as
they expand abroad. The company, which is not listed, also has taken
shares in financial institutions such as Barclays.
Another possibility would be an investment arm of the government,
although the distinction between government and quasi-private money is
often blurred in China.
Other potential Chinese investors include China Investment
Corporation, which invests China's res-erves abroad, and recently put
$5bn into Morgan Stanley. China's State Administration of Foreign
Exchange also invests directly offshore.
Citi's capital-raising structure differs from the first round. That
involved a complex security that converts into Citi shares with a
generous 11 per cent coupon.
Copyright The Financial Times Limited 2008.
http://www.ft.com/cms/s/0/c6eb81e0-c083-11dc-b0b7-0000779fd2ac.html?nclick_check=1
