Treasury Not Impressed with Citigroup Share Offering Price of $3.15

Earlier this week, the Treasury Department made it known that they would be selling as much as $5 billion dollars worth of their common shares of Citigroup, in conjunction with the company's large public offering.

Citigroup needed to raise over $20 billion dollars via the sale of debt and equity in order to pay back their TARP funds. Company executives have been publicly complaining that TARP-imposed executive compensation limits have made it difficult to retain key employees, making the swift repayment of $20 billion dollars in TARP funds necessary in order to remain competitive.

One of the problems that Citigroup has been facing is that the Treasury Department currently holds $25 billion dollars worth of common shares in the company. This stake came via the conversion of TARP funds into common shares (Citigroup originally received $45 billion in TARP money).

How do we get investors interested in our massive $20 billion dollar plus offering, Citigroup executives wondered, if the Treasury Department has a $25 billion dollar bundle of common shares that they can unload at any time? The entire company is worth approximately $79 billion dollars.

The Treasury Department had announced that they would be selling as much as five billion dollars worth of their common shares in conjunction with the share offering from Citigroup. This, it was thought, would make it easier for Citigroup to raise $20 billion dollars.

Not so fast.

The Treasury Department has reversed course, announcing that they will not be selling shares this week. Instead, the Treasury said that they won't sell any of their shares in Citigroup for at least the next 90 days.

The reason? Tepid demand for Citigroup's offering has forced the company to lower the price of their share offering.

Citigroup has apparently sold 5.4 billion shares for $3.15 per share. This was much lower than previously anticipated, and the government is not prepared to unload any of their shares at this price.

Citigroup closed at $3.45 on Wednesday.

The government currently has 7.7 billion shares of Citigroup at an average price of $3.25, meaning that they would have lost money had they sold shares at $3.15.

Instead, they are hoping to sell at a higher price over the coming months.

Investors have been turning their noses up at the Citigroup offering due to a number of different reasons, including:

-number of large share offerings all at the same time (Bank of America, Wells Fargo)

-worries over the Abu Dhabi Investment Authority filing a multi-billion dollar arbitration claim against Citigroup, relating to the fund's $7.5 billion dollar investment in the company

-Citigroup being seen as the "weakest" of the three companies that are pricing offerings

With the US announcing that they will be delaying the sale of any of their shares in Citigroup, the original problem resurfaces - how confident will investors be in holding Citigroup shares, knowing that the government can unload its 7.7 billion share stake at any time?

This offering has turned into a bit of a debacle.. should be interesting to see how Citigroup trades on Thursday and Friday..

Photo: acameronhuff

Filed under: General Market News