As we correctly predicted, the U.S. is beginning to call in its markers.
If you read the fine print on the U.S. conversion of its Citigroup debt to ordinary shares in the company, you could have predicted it too.
Here’s the fine print:
The U.S. said it will convert its stake in Citigroup to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so.
The U.S. Treasury Department will match the private investors’ conversions dollar-for-dollar.
The arms have been twisted successfully, and the U.S. will convert 25 billion dollars of capital into Citigroup ordinary shares.
So whose arm got twisted?
We don’t know all of the victims, but Singapore’s GIC was, most likely, the largest.
Singapore will convert its preferred notes, which yielded 7%, to ordinary shares. Singapore will do this at a price of $3.25 a share below the conversion price of $26.35 as agreed when it invested in the preference notes.
This means Singapore is paying $3.25 a share for Citigroup, and giving up their 7% yield of $482 million a year for no yield at all!
Friday, on the NYSE, Citigroup plunged to $1.50 a share.
Let’s do the math. Singapore is paying $3.25 a share for shares worth $1.50. Singapore is paying doubles (2.17 times to be exact) the going price for Citigroup shares.
That dilutes Singapore’s initial investment in Citigroup for the original $6.88 billion to $3.17 billion – a loss for Singapore of $3.71 billion.
Lee Kuan Yew, Singapore’s de facto ruler, has said that Citibank has an excellent franchise, and that Singapore has invested for the long term – 20 or 30 years – far beyond his life expectancy.