Singapore apparently paid Citi more when China refused
By MarketWatch
Last update: 9:25 a.m. EST Jan. 15, 2008
The Singapore government’s main investment vehicle agreed to increase the amount it planned to inject into Citigroup (C:C 26.24, -0.70, -2.6%) “apparently to cover” the approximately $2 billion Citi had unsuccessfully sought from the government of China, a person familiar with the situation said Tuesday.
During most of the day, Government of Singapore Investment Corp. (GIC) was committed to invest about $4.8 billion to $5 billion in Citigroup, but later in the day apparently told Citi it would “cover” the amount of money ($1.8 billion to $2 billion) the bank had hoped to raise from the Chinese government, the person said.
GIC’s decision partly reflected GIC’s long-standing relationship with the new CEO of Citi, Vikram Pandit, the person said. GIC was an original investor in Old Lane Partners, a hedge fund Pandit co-founded; it was later bought by Citigroup.
China Development Bank’s rejection of Citi’s request emerged Monday night.
The Singapore government would consider additional investments in Citigroup “if the opportunity and the need arises,” the person said.
Singapore has two sovereign wealth funds – GIC and Temasek Holdings Pte. – which have taken stakes in troubled financial institutions in recent months.
The terms of GIC’s purchase of $6.88 billion in Citi convertible bonds reflect the cash-strapped bank’s lack of leverage: GIC said the instruments will earn a hefty 7% non-cumulative interest, payable quarterly.
The conversion premium is a fairly low 20% and is “subject to adjustment in certain limited circumstances.” However, GIC noted these instruments give “appropriate downside protection.”
The press release didn’t give further details.
All told, GIC will own 4% of Citi as a result of the transaction; it already held 0.3% of the bank. GIC said it won’t “take” a board seat at Citi. Indeed, political sensitivities have prompted sovereign wealth funds providing financial infusions to U.S. and European banks to emphasize their intended roles as passive investors.