Citigroup (C) just announced that they are selling a $7.5 billion stake to the sovereign wealth fund of Abu Dhabi, one of the United Arab Emirates.
The stake is in the form of equity units which are “mandatorily convertible” into Citi stock at prices between $31.83 and $37.24 between March 15, 2010 and September 15, 2011. Each unit pays an 11% interest rate (Press Release).
Basically, what this looks like to me is a loan to Citigroup at a high interest rate and also an investment in the sense that Abu Dhabi will own Citigroup shares 3-4 years from now at prices slightly above the current market price, suggesting Abu Dhabi believes Citigroup will survive the current shakeout and be a good investment over the longer term.
These terms (11% interest rate, conversion prices only slightly above today’s depressed levels) are highly favorable to Abu Dhabi. But they also serve Citigroup’s need to raise capital.
Also interesting is a Middle Eastern sovereign wealth fund deciding to take a stake in a US business rather than just recyclying their petrodollars into our crappy federal debt. We’ve seen similar attempts with the Dubai ports deal and CNOOC’s attempt to buy Unocal.