The Work

December 7, 2009 4:16 PM

Another Sovereign Wealth Fund Bows Out of Citigroup

Posted by Brian Baxter

Almost two years after pumping $3 billion into Citigroup as part of a $12.5 billion investment aimed at propping up the ailing banking giant, the Kuwait Investment Authority is cashing out.

The KIA, the sovereign wealth fund of Kuwait, announced on Sunday that it had sold its stake of preferred Citi shares for $4.1 billion after converting them to common stock. The $1.1 billion profit works out to a gain of nearly 37 percent on KIA's January 2008 investment.

Gibson, Dunn & Crutcher capital markets partner Steven Guynn in New York advised KIA on its investment in Citi, which had just posted an $18.1 billion fourth quarter loss in late 2007. A Gibson Dunn spokeswoman confirmed that the firm once again advised KIA on the sale of its Citi stake.

Guynn, who wouldn't provide details on the stock sale beyond a short statement by KIA, led a team from the firm that includes corporate partners Darius Mehraban, Jeffrey Trinklein, Ronald Mueller, and associates Melissa Torres Toomey, Stewart Ross, and Justin Reda.

Citi has relied on a team of lawyers from Sullivan & Cromwell, Davis Polk & Wardwell, and Cleary Gottlieb Steen & Hamilton to negotiate with private investors and the U.S. government, which helped bail out Citi earlier this year when the financial forecast worsened.

The Am Law Daily called several of the lawyers that have advised Citi in the past but none immediately responded to requests for comment. (Most of the legal work for Citi was likely handled on the front end, as KIA's recent decision to sell is essentially an asset sale on the open market with Citi as a third party.)

As previously reported by The Am Law Daily, when the government intervened to help keep Citi's umbrella aloft, several firms scored roles advising clients on an exchange of Citi preferred stock for common shares. After falling below $1 per share, Citi's stock has rebounded in recent months.

The New York Times reported on Sunday that sovereign wealth funds were reaping the benefits from sales in investments in large financial institutions made at the onset of the global economic crisis two years ago. But not all of those investments have paid off. The Am Law Daily reported last week that a $7.5 billion investment made in November 2007 by the Abu Dhabi Investment Authority--advised by Shearman & Sterling--for a 4.9 percent stake in Citi might go badly for the sovereign wealth fund when it has to purchase Citi shares next year at 2007 prices.

The American Lawyer named several S&C partners as Dealmakers of the Year in 2008 for their work advising Citi on investments by sovereign wealth funds like the KIA and ADIA. Also riding to Citi's rescue as part of the $12.5 billion investment in January 2008 were Prince Alwaleed bin Talal of Saudi Arabia, Singapore's sovereign wealth fund, the New Jersey Division of Investment, and two units of The Capital Group Companies.

As previously reported by The Am Law Daily, Hogan & Hartson advised Prince Alwaleed, who has a long history of helping Citi during cash crises, while Sidley Austin's Susan Lewis handled matters for the Singapore Investment Corporation. KIA turned to Gibson Dunn. The Kuwaiti fund is a longtime client, having turned to the firm for its preliminary $3 billion investment in preferred Citi stock two years ago and subsequent $2 billion investment in Merrill Lynch.

Citi still has plenty of legal issues keeping its outside lawyers busy. The Financial Times reported on Sunday that the banking giant is racing against the clock to convince U.S. regulators that it be allowed to repay its $20 billion in bailout funds. The U.S. government owns a third of the banking giant.

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