Photo: Bloomberg
Photo: Bloomberg

Citigroup loses bid to stop Abu Dhabi investment arbitration

The dispute centers on how Citigroup treated a $7.5 billion investment in the bank, made by the Abu Dhabi govt-owned investment authority in 2007

Chicago: Citigroup Inc. failed to persuade a judge that Abu Dhabi Investment Authority was barred under an agreement with the bank from seeking arbitration over $2 billion in claims the emirate’s entity already pursued and lost.

US district judge P. Kevin Castel in Manhattan on Monday said whether the investment authority, or ADIA, can re-litigate issues the bank contends were resolved in a 16-day proceeding two years ago is up to a panel of arbitrators and not the courts.

The broad arbitration clause was the product of intensive, arm’s-length negotiations between the parties, Castel said in his ruling. The preclusive effect of any prior arbitration must be decided by an arbitration panel.

The dispute centers on how Citigroup treated a $7.5 billion investment in the bank, made by the Abu Dhabi government-owned investment authority in 2007. ADIA’s acquisition of a then-4.9% stake in Citigroup allowed the lender to replenish capital after record mortgage losses wiped out almost half it’s market value that year and made the emirate the bank’s biggest investor.

Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, declined to comment on the judge’s decision on Monday. Erik Portanger, a spokesman in Abu Dhabi for ADIA, didn’t immediately respond to an e-mail before regular business hours seeking comment on the ruling.

The parties’ agreement called for the ADIA’s money to be converted to Citigroup common stock on four dates from March 2010 to September 2011, with the valuation of those shares being $31.83 to $37.24, depending on market price at the time the capital was converted.

Binding arbitration

The number of shares alloted to the authority was to increase if the bank issued more than a specified number during the following year, the judge wrote.

The accord included a binding arbitration clause requiring alternative dispute resolution for any disagreement that can’t be resolved within 30 days.

Abu Dhabi’s investment authority filed for arbitration in 2009, alleging the bank’s issuance of preferred stock to other investors, later converted to common stock, diluted the value of the ADIA stake. It sought $4 billion in damages.

After a 16-day hearing at which 24 witnesses testified and 6,000 exhibits were moved into evidence, an arbitration panel rejected the ADIA claims in 2011. A US judge in New York denied the authority’s bid to overturn the arbitrators’ ruling this year.

When ADIA again filed for arbitration in August, seeking $2 billion or a ruling rescinding the stock purchase, the bank asked the court to block it as an illegal attack on the prior proceeding. Castel disagreed, granting an ADIA motion to compel the out-of-court proceeding. BLOOMBERG

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