Market Scan
Citi Turns To Bond Market-Forbes

http://www.forbes.com/markets/economy/2008/03/05/citigroup-securities-capital-markets-equity-cx_md_0304markets25.html


Maurna Desmond, 03.05.08, 3:00 PM ET Citigroup, under pressure to raise capital, is making a big bet that it can raise money from yield-hungry investors. It is selling a $2.5 billion bond issue, most of which it is underwriting by itself.

Wednesday, Citigroup said it would sell a 30-year issue, underwriting the lion’s share — $2.1 billion, or 84.0% — itself. The relatively long-term issue has a relatively yummy yield: 6.875% of face value. Shareholders were stoic: the company’s shares slipped 3 cents, or 0.1%, to $22.12 in afternoon trading.

If a bond sale cannot be placed with investors, the underwriters — which in this case is largely the issuer — end up having to hold the paper. So the strategy contains an element of risk for Citi.

This news follows heat Tuesday from Sameer al-Ansari, chief executive of Dubai International Capital, who told a private-equity conference that Citigroup is going to need “a lot more money” from outside investors to weather hard times brought on by the subprime mortgage crisis. (See “Citi Needs A Money Fix, Quick”)

In November, the Abu Dhabi Investment Authority sunk $7.5 billion into Citigroup, shoring up its capital after billions in losses related to subprime mortgages. (See “Citigroup’s Write-down Disaster”) This bought the United Arab Emirates’ sovereign wealth fund a 4.9% stake in the bank. (See “Abu Dhabi Pumping $7.5B Into Citi” and “Rich Countries Funding Big Banks”)

In January, Citigroup also sold $12.5 billion in stock to additional investors including the Kuwait Investment Authority and Prince Alwaleed Bin Talal Alsaud of Saudi Arabia. (See “Prosperity and Peace In The Middle East”)

In January, the bank announced $18.1 billion in write-downs for the fourth quarter and a net loss of $9.8 billion. In a bid to shore up its capital, the firm secured $12.5 billion in cash from a collection of investors and slashed its dividend by 41%. (See “Citigroup’s Write-Down Disaster”)

According to TradeTheNews.com, besides Citi, other underwriters include Bear, Stearns, Deutsche Bank Securities, Lehman Brothers, Merrill Lynch, Banc of America Securities Barclays Capital, Cabrera Capital Markets, CastleOak Securities, Greenwich Capital Markets. and UBS Securities.

 

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