Citi’s Investment From China May Hit Snag

[squaretimes]

January 14, 2008

Citigroup’s attempt to get a $2 billion investment from the China Development Bank may have hit an obstacle in the form of new opposition from within the Chinese government.

The Wall Street Journal reported Monday that the potential stake sale “could be in jeopardy” because of opposition that surfaced over the weekend. The nature of the opposition wasn’t given, but a source familiar with the matter confirmed to DealBook that internal differences between the government and China’s investment arm have emerged. Early reports about China’s investment in Citi could make it awkward if the deal fails to materialize.

The tension comes as Citi is turning to cash-rich foreign investors for a second time as it confronts mounting losses on mortgage-related investments, several reports over the weekend said.

The troubled financial giant may sell up to a $10 billion stake to China and other foreign governments and investors like Prince Alwaleed Bin Talal.

The New York Times said that Citigroup is also in talks with the Government of Singapore Investment Corporation and the Kuwait Investment Authority.

Large investors like Prince Alwaleed, who helped rescue Citigroup in the early 1990s, and Capital Research and Management, a money management firm that is the bank’s biggest shareholder, are being offered the chance to invest as well to avoid having their current stakes diluted, but it is unclear if they will choose to do so, The Times said.

While it was not known how much would be invested by Prince Alwaleed, The Journal calculated that his stake in the bank would likely remain under 5 percent, but that even a 1 percent stake would be a vote of confidence.

If the deal goes through, it would be the second instance in less than two months of Citigroup’s being forced to turn to foreign investors to shore up its weakening finances. In November, the company sold a $7.5 billion stake to a Middle Eastern fund, Abu Dhabi Investment Authority, underscoring its deteriorating capital position. That purchase gave Abu Dhabi a 5 percent stake.

The latest developments represent a crucial step for Vikram S. Pandit, who was named chief executive in December. Mr. Pandit has moved quickly to shore up Citigroup and place his stamp on the company after succeeding Charles O. Prince III, who abruptly resigned in early November.

Mr. Pandit has been personally involved in the talks, The Times said. He and other Citigroup executives have reportedly been working on the transaction for several week