Citigroup: Exchange offer delayed until end of industry stress tests

By Jennifer Chiou

New York, April 17 - Citigroup Inc. announced an update on the timing for its proposed offer to issue its common stock in exchange for its convertible and non-convertible preferred and trust preferred securities.

The company said that it continues to finalize definitive documentation with the U.S. government for the exchange. It is also working to complete the customary Securities and Exchange Commission review process for the offers, adding that although significant progress has been made on these matters, the process is not yet complete.

According to an 8-K filing with the SEC, the company proposed the offer on Feb. 27.

Additionally, the U.S. government is finalizing its previously announced industry stress tests, the results of which are anticipated to be available soon, Citi noted, stating that the proposed exchange offer will not be launched until the conclusion of the industry stress tests.

Citi also confirmed its intention to continue to pay full dividends on the preferred shares through and until the closing of the public exchange.

Affected securities include the 8.5% non-cumulative preferred stock, series F; 8.4% fixed-rate/floating-rate non-cumulative preferred stock, series E; 8.125% non-cumulative preferred stock, series AA; 6.5% non-cumulative convertible preferred stock, series T; 8.3% E-Trups; 7.875% E-Trups; 7.25% E-Trups; 6.875% E-Trups; 6.5% E-Trups; 6.45% E-Trups; 6.35% E-Trups; 6.829% E-Trups; 7.625% Trups; 7.125% Trups; 6.95% Trups; 6.1% Trups; and two series of 6% Trups.

The offer is slated for early April and is subject to the completion of the required SEC review process.

Citi previously said it is seeking to amend its charter to, among other things, increase the number of authorized shares and authorize the board to execute a reverse stock split. The company noted that shareholder approval to increase Citi's authorized shares is not necessary to complete the exchange.

Citi already said it also has entered into definitive agreements with all of the private holders of about $12.5 billion of convertible preferred securities that were issued in January 2008.

As announced on Feb. 27, Citi is seeking to exchange about $27.5 billion of public and private preferred securities with a commitment from the U.S. Treasury to convert up to an additional $25 billion of its preferred securities for common stock. The conversion price is initially set at $3.25 per share.

In an S-4 filing with the SEC, the company registered about 4.38 billion shares at $3.25 apiece for a proposed maximum offering price of $6.28 billion.

Citi will offer to exchange:

• Interim securities and warrants for private convertible preferred securities held by investors other than U.S. government agencies;

• Interim securities and warrants for U.S. government-held preferred securities; and

• Common stock for convertible and non-convertible preferred securities that had been publicly offered.

According to the 8-K, the maximum number of interim securities to be issued is 11,540 shares. If shareholder authorization is not received within six months after closing the exchanges, the interim securities will pay a 9% dividend that will increase by 2% per quarter, capped at 19%.

In addition, the warrants will allow private holders to purchase Citi shares at $0.01 per share if authorization is not obtained within six months, with a maximum of 790 million shares to be issued for the warrants.

Citi said that the primary goal of the exchange offers is to make it one of the strongest capitalized banks on a tangible common basis, and depending on the level of participation by exchanging holders, tangible common equity would increase to up to $81 billion.

Assuming full participation of public preferred shareholders, Citi said it will convert into common shares about $52.5 billion of liquidation preference of preferred shares.

The conversion of interim securities to common shares will be completed upon adoption of the amendment to authorize additional shares.

Government of Singapore Investment Corp. Pte. Ltd., one of the private holders with whom Citi entered into an exchange agreement, has granted Citi irrevocable proxies when it comes to excess voting power representing ownership of more than 9.9% of voting power.

Citi also said it has received New York Stock Exchange approval to proceed with the exchange offers.

The financial services company is based in New York.

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