Abu Dhabi backtracks on Citigroup share purchase

NEW YORK - Abu Dhabi is trying to rip up its disastrous US$7.5 billion ($10.5 billion) agreement to invest in Citigroup, saying the banking giant misled the country's sovereign wealth fund about the state of its finances when the deal was signed in 2007.

The oil-rich emirate is committed to buying Citigroup shares over the next two years at what is now 10 times the prevailing share price, and it has launched an arbitration claim for compensation to the tune of US$4 billion. The Abu Dhabi Investment Authority (Adia) said Citigroup made "fraudulent misrepresentations" in connection with the agreement, but declined to provide specifics. "It is the policy of Adia to pursue its legal rights fully," a fund spokesman said.

"Adia declines to comment further due to binding confidentiality obligations, which Adia intends to respect."

Citigroup promised to vigorously defend the arbitration claim. The US$7.5 billion investment in Citigroup was unveiled by Adia in November 2007, when it seemed that money from the sovereign wealth funds of developing nations, particularly in the Middle East where the benefits of high oil prices were being felt, might be the best way to recapitalise the US banking system.

Citigroup had begun to show losses on its sub-prime mortgage investments earlier in the year, but said it was moving to strengthen its balance sheet.

The collapse of the company, which twice had to be bailed out by the US Government last year, is therefore a big embarrassment to Abu Dhabi.

The dispute comes at a critical moment for the finances of both sides. Abu Dhabi committed this week to lend US$10 billion to bail out fellow emirate Dubai, and Citigroup was yesterday trying to raise US$17 billion as part of its scheme to pay back US government bailout funds.

- INDEPENDENT