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Citi says Abu Dhabi will invest $7.5 billion for up to 4.9% stake

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November 27, 2007|From Times Wire Services

Citigroup Inc., suffering huge losses on mortgage-related securities, said late Monday that an arm of the Abu Dhabi government would invest $7.5 billion in the giant U.S. bank.

The cash infusion would give the Abu Dhabi Investment Authority a stake of as much as 4.9% in Citigroup.

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," Win Bischoff, Citigroup's acting chief executive, said in a statement.

Bischoff took the reins of Citigroup after Charles O. Prince III was forced to step down as CEO on Nov. 4, the day the company said it was likely to write down the value of its portfolio by $8 billion to $11 billion in the fourth quarter.

In the third quarter, the bank's exposure to assets tied to sub-prime mortgages led to a loss of about $6.5 billion.

Citigroup is searching for a permanent CEO.

Abu Dhabi, one of the United Arab Emirates, is buying from Citigroup equity units that would pay an 11% annual dividend and be converted into Citigroup common stock in 2010 and 2011 at prices of $31.83 to $37.24 a share, depending on the bank's stock price at that time.

Before the deal was announced, Citigroup shares fell $1, or 3.2%, to $30.70. They are off 45% this year.

Citigroup said Abu Dhabi would have "no role in the management or governance of Citi, including no right to designate a member" of its board.

"We see in Citi a highly respected company with a premier brand and with tremendous opportunities for growth," said the investment authority's managing director, Sheik Ahmed bin Zayed al Nahayan. "This investment reflects our confidence in Citi's potential to build shareholder value."

The investment, which is expected to be completed in the next several days, is the latest by so-called sovereign funds in the Middle East that have been building up their overseas investments recently, many of them on the back of oil prices that have risen more than 60% this year and have brought the region record cash flows.

Many firms have welcomed such investments because the funds tend to be stable investors, but some U.S. officials have expressed concern about foreign involvement in sensitive sectors with links to national security.

In the early 1990s, after Citigroup made some losing bets on real estate and Latin America, Saudi Prince Alwaleed bin Talal bought a stake for less than $600 million. Its value has risen to several billion dollars.

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