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Abu Dhabi Gets Interest Payment from CITI While the American Taxpayer is Left Holding the Bag

Holding the bag with Common Stock..

Citigroup said on Friday that Abu Dhabi’s US$7.5 billion investment in the struggling American bank was unaffected by the latest deal to convert preferred shares into common stock and that Citi would continue making interest payments to the emirate.

Citigroup on Friday announced a deal to shore up its equity by converting preferred shares into common stock. As part of that arrangement, the US government will end up owning as much as 36 per cent of Citigroup, while existing shareholders will see their ownership of the bank diluted.

In the early days of the financial crisis in late 2007, the Abu Dhabi Investment Authority, the emirate’s largest sovereign wealth fund, joined a group of investors coming to Citigroup’s aid, buying a $7.5bn debt instrument. Under the terms of that deal, Adia receives 11 per cent interest per year in quarterly payments, but has to start converting its investment into 235.6 million Citigroup shares in March of 2010.
A spokesman for Citigroup, Steven Cohen, said on Friday that Adia’s investment was unaffected by the latest changes and that its interest payments would continue. He declined to comment, however, on whether the bank was in talks with Adia to alter the terms of its investment. Adia declined to comment.

The US Treasury agreed on Friday to convert its $25bn in preferred shares into common stock at $3.25 a share, raising its stake in the bank to 36 per cent from 8 per cent. At the same time, Citigroup said it was suspending interest payments to preferred shareholders. Simultaneously the Government of Singapore Investment Corporation, which invested in Citigroup alongside Adia, said on Friday that it would also convert its preferred Citi shares into common stock, giving it an 11.1 per cent stake in Citi….SOURCE

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