ADIA Files Claim Against Citigroup

ABU DHABI - The Abu Dhabi Investment Authority (ADIA) vowed on Wednesday to pursue its “legal rights” to settle a dispute with US lender Citigroup Inc. over a two-year-old $7.5 billion stock purchase deal.

By T. Ramavarman

Published: Fri 18 Dec 2009, 12:49 AM

Last updated: Thu 2 Apr 2015, 9:28 AM

Citigroup, in a statement issued late on Tuesday, had said that ADIA, had filed an arbitration claim, alleging “fraudulent misrepresentations”, and sought revocation of the investment agreement or more than $4 billion in damages if the deal is upheld.

Citigroup promised to “vigorously” fight the claims, which it said had no merit.

“It is the policy of ADIA to pursue its legal rights fully,” an ADIA spokesperson said in an e-mailed statement. “ADIA declines to comment further due to binding confidentiality obligations, which ADIA intends to respect.”

ADIA had invested $7.5 billion in Citigroup in November 2007, getting securities that must be converted into common stocks at a price in the range of $31.83 to $37.24 a share between March 2010 and September 2011. Citigroup shares closed at $3.56 in New York on Tuesday.

Citigroup, which on Monday had said that it would sell stock to repay $20 billion in bailout funds to the US government, had turned to the world’s biggest sovereign wealth fund to replenish capital battered by $118 billion of subprime write-downs. The stock has since dropped 89 per cent.

Analysts said they were not surprised by the investment agency’s attempt to mitigate its losses, but warned that if successful, it could set a nasty precedent for similar investors in Citigroup that had lost money.

Rochdale Securities banking analyst Dick Bove said Citigroup may not want to set a precedent by refunding the investment, but must respond to the claim from an important client.

“It’s in Citigroup’s interest to have (CEO) Vikram Pandit get on a plane to Abu Dhabi and cut the conversion price to $10 a share and make this problem go away,” Bove said. “They used to be the primary bank outside the Arab banks (in the Gulf region).”

At the end of 2008, Citigroup had about a $1.92 billion loan exposure to the UAE, of which Dubai is a part. Walter Todd, portfolio manager for Greenwood Capital Management, said he was “not surprised” that Abu Dhabi was claiming damages from the investment.

“But if they win this, it could open a can of worms for a lot of firms raising capital at the time,” said Todd, who does not own Citigroup shares.

The claim by ADIA comes weeks after the Kuwait Investment Authority and Singapore’s GIC cashed in stakes in Citigroup for profits of over $1 billion each.

ADIA has an estimated $500 billion to $700 billion of assets. KIA said on December 6 it had transferred the preferred stock it owned in Citigroup to common shares and sold all of them for $4.1 billion, notching a 37 percent return on its January 2008 investment. GIC halved its stake in Citigroup in September, cashing in on a market rally for a profit of $1.6 billion.

Common shares of Citigroup, which has posted more than $100 billion of write-downs and consumer credit losses since the credit crisis began, have lost about 85 per cent of their value since January of 2008.

The bank, the only major US lender still dependent on what the government calls “exceptional financial assistance,” said this week it will sell at least $20.5 billion of equity and debt to exit the Troubled Asset Relief Programme, or TARP.

The US Treasury Department also plans to sell as much as $5 billion of common stock it holds in the company, and will unload the rest of its stake during the next six to 12 months.

The company also plans to substitute “substantial common stock” for cash compensation, Citigroup said in a statement on December 14.

The US government agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal to repay TARP, the Washington Post reported on Wednesday, citing an exception to long-standing tax rules issued by the Internal Revenue Service on December 11.

With inputs from Agencies

More news from