Singapore apparently paid Citi more when China refused

January 16, 2008
Singapore Democrats

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Singapore apparently paid Citi more when China refused
Dow Jones Newswires
http://money.cnn.com/news/newsfeeds/articles/djf500/
200801150841DOWJONESDJONLINE000333_FORTUNE5.htm

The Singapore government’s main investment vehicle agreed to increase the amount it planned to inject into Citigroup (C) “apparently to cover” the approximately $2 billion Citi had unsuccessfully sought from the government of China, a person familiar with the situation said Tuesday.

During most of the day, Government of Singapore Investment Corp. (GIC) was committed to invest about $4.8 billion to $5 billion in Citigroup, but later in the day apparently told Citi it would “cover” the amount of money ($1.8 billion to $2 billion) the bank had hoped to raise from the Chinese government, the person said.

GIC’s decision partly reflected GIC’s long-standing relationship with the new CEO of Citi, Vikram Pandit, the person said. GIC was an original investor in Old Lane Partners, a hedge fund Pandit co-founded; it was later bought by Citigroup.

China Development Bank’s rejection of Citi’s request emerged Monday night.

The Singapore government would consider additional investments in Citigroup ” if the opportunity and the need arises,” the person said.

Singapore has two sovereign wealth funds – GIC and Temasek Holdings Pte. – which have taken stakes in troubled financial institutions in recent months.

The terms of GIC’s purchase of $6.88 billion in Citi convertible bonds reflect the cash-strapped bank’s lack of leverage: GIC said the instruments will earn a hefty 7% non-cumulative interest, payable quarterly.

The conversion premium is a fairly low 20% and is “subject to adjustment in certain limited circumstances.” However, GIC noted these instruments give ” appropriate downside protection.”

The press release didn’t give further details.

All told, GIC will own 4% of Citi as a result of the transaction; it already held 0.3% of the bank. GIC said it won’t “take” a board seat at Citi. Indeed, political sensitivities have prompted sovereign wealth funds providing financial infusions to U.S. and European banks to emphasize their intended roles as passive investors.