An arbitration panel in New York has ruled against the Abu Dhabi Investment Authority (Adia) in its dispute with Citigroup over a US$7.5 billion (Dh27.54bn) investment.
The ruling, which was handed down on October 14 but not announced publicly at the time, puts an end to the two-year disagreement in which Adia had alleged "fraudulent misrepresentations" by Citigroup in the dealings leading up to the transaction.
"An arbitration panel issued a final award and statement of reasons finding in favour of Citigroup on all claims asserted by the Abu Dhabi Investment Authority in connection with its $7.5bn investment in Citigroup," the banking company said in its quarterly earnings.
Adia had agreed at the onset of the financial crisis in 2007 to invest $7.5bn in "equity units" in the US banking giant. These paid interest to Adia and converted into shares in several stages in the future.
The value of Citigroup shares collapsed after the deal due to the mortgage crisis, prompting a US government bailout that diluted shareholders' equity and has left the stocks trading at 89 per cent below their price at the time of the agreement.
In 2009, Adia took the case to arbitration in New York, seeking to cancel the agreement or be paid damages of $4bn.
"Adia is disappointed with the decision of the arbitrators and is reviewing its options," a spokesman for Adia said. He declined to elaborate. Citigroup was not available for comment.
Citigroup was among a number of western financial giants that approached Gulf sovereign investment funds for cash injections after the US subprime meltdown. Merrill Lynch, Barclays Bank, Credit Suisse and Deutsche Bank all raised capital from Gulf states as the sector was shaken by the financial crisis.
Under the deal with Citigroup, Adia bought $7.5bn of convertible securities which it agreed to turn into shares on four dates between March last year and September 15 this year, at a price of $31.83 per share.
Adia agreed to buy no more than 4.9 per cent of Citi's stock, and opted not to appoint a member to the bank's board of directors.
The value of Citigroup's shares has been hammered by the financial crisis. Citigroup's stock price sank as low as $0.97 per share on March 5, 2009.
Soon after, Citigroup announced a reverse stock split, which took place in May this year and swapped every ten of the company's shares for one new share - boosting the share price tenfold in the process. The bank's shares closed on Friday at $30.34.
Adia took a paper loss on the share purchases, but this was to some extent compensated for by interest payments also included in the deal, which allowed Adia to recoup more than $2.5bn from the transaction.
In October 2008, Citibank received $45bn in US federal aid as part of the Troubled Asset Relief Program (Tarp), intended to stabilise the American financial system after the collapse of Lehman Brothers.
That was followed by a conversion of $25bn of government-owned preferred stock into common equity in February 2009 - significantly diluting existing shareholders' equity.
Victoria Barbary, the managing director of Dhana Advisory, a consultancy focused on sovereign wealth funds, said the Citigroup experience meant Adia was less likely to make such big single investments in the future.
"This investment was an unusual one for Adia, as they don't usually take such large direct positions in a single company," she said.
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ONCE UPON A TIME IN GAZA
Starring: Nader Abd Alhay, Majd Eid, Ramzi Maqdisi
Directors: Tarzan and Arab Nasser
Rating: 4.5/5
Classification of skills
A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation.
A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.
The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000.
Champions parade (UAE timings)
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8pm Deansgate stage showing starts
9pm Parade starts at Manchester Cathedral
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10pm City players on stage
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Neil Thomson – THE BIO
Family: I am happily married to my wife Liz and we have two children together.
Favourite music: Rock music. I started at a young age due to my father’s influence. He played in an Indian rock band The Flintstones who were once asked by Apple Records to fly over to England to perform there.
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Favourite film: The Greatest Showman.
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Favourite food: I went to boarding school so I like any cuisine really.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
