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Abu Dhabi breaks from its past with Citigroup investment

By agreeing to purchasing a $7.5 billion stake in the faltering banking giant Citigroup, the secretive, government-controlled Abu Dhabi Investment Authority is breaking with tradition.

As the largest sovereign wealth fund in the world, with assets estimated at $650 billion, it poured money in the past into low-return, low-profile investments or small emerging market deals, unlike its flashy emirate neighbor, Dubai.

But a falling dollar and a growing cash pile are spurring Abu Dhabi to change strategy, according to analysts, economists and deal makers, who said that more big-ticket deals might be ahead.

Flush with cash from its oil exports, Abu Dhabi turned to Wall Street, using a complicated transaction late Monday to buy 4.9 percent of Citigroup, acquiring high-yield, convertible stock that must be exchanged for common stock between March 2010 and September 2011.

Abu Dhabi is the largest oil producer of the seven United Arab Emirates and is eager to spend its petrodollars.

"They're watching them depreciate, and that's driving their anxiety," said Marc Ginsberg, a former U.S. ambassador to Morocco who has worked with other emirates.

Abu Dhabi also has an interest in making sure the U.S. economy does not slow further, Ginsberg said, which helps to make investments like the Citigroup stake more attractive.

The deal has already been approved by U.S. regulators and has the blessing of some of the most ardent critics of other planned Middle East investments. It was expected to close in a few days.

The purchase gives the Abu Dhabi ruling family, headed by Sheik Khalifa bin Zayed al-Nahyan, the largest individual stake in Citigroup, edging past Prince Walid bin Talal of Saudi Arabia. In a statement, Sheikh Ahmed said the deal reflected its confidence in Citigroup.

The fund, which was started in 1976, has nearly double the assets of the next-largest state fund, Norway's government pension fund, according to Standard Chartered.

The Citigroup deal came together last week after a marathon series of phone calls and an 11th-hour trip by Robert Rubin, chairman of Citigroup, to Abu Dhabi, the capital of the United Arab Emirates, according to people briefed on the negotiations.

It was set up by Michael Klein, the co-head of Citigroup's investment bank, who has deep relationships in the Middle East; he flies to Riyadh frequently to meet with Prince Walid, these people said.

The Abu Dhabi fund had recently been searching for potentially undervalued banks in which to make a large investment. Citigroup's shares had dropped to just above $30 Monday from $57 in late December. The shares remained weak Tuesday, even as the Dow Jones industrial average rose nearly 200 points.

While Dubai has been pursuing a high profile transformation from sandy port to tourism destination and Middle East financial center, Abu Dhabi has been less public about any transformation.

"They are different animals," David Butter, the Middle East regional head at The Economist Intelligence Unit, said of Abu Dhabi and Dubai investment arms. "The purpose of ADIA," he added of the fund, "is to invest surplus cash in assets that would provide steady gains and returns over time."

Like other sovereign wealth funds, the Abu Dhabi fund is looking for investments that diversify foreign currency reserves earned from exporting oil. But while other funds made their investment interests public, like Qatar's attempt this year to buy the British supermarket chain J Sainsbury, the Abu Dhabi fund has been among the most secretive about transactions or investment strategy.

It limited its investment stakes to less than 4.5 percent of the total equity value to avoid having to disclose them to regulators, and it never provided the value of assets under management, according to a report last month by the chief economist of Standard Chartered, Gerard Lyons.

Butter, of The Economist Intelligence Unit, said the Abu Dhabi fund, which is run like many other funds even though it is not open to the public, had "generally been changing its approach" to investments.

With the creation of a new investment arm, Mubadala Development, in October 2002, Abu Dhabi started to invest directly in projects like telecommunications systems in Nigeria and power plants in Algeria. Recently, Mubadala purchased 8 percent of the U.S. chip maker Advanced Micro Devices and 7.5 percent of the investment fund Carlyle Group. The larger Abu Dhabi fund bought a 9 percent stake this year in Apollo Management, a private equity firm run by Leon Black, for an undisclosed sum.

But the Citigroup deal is by far the fund's largest. According to estimates by Euromoney, the fund has had an annual growth rate of 10 percent.

http://www.iht.com/articles/2007/11/...i.php#end_main

[Ninjaneer]

Cha-ching $$$

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Is Foreign Investment helping or hurting the U.S. economy??