Abu Dhabi blazes trail with Citi deal

By Dayan Candappa and Sujata Rao

DUBAI/LONDON (Reuters) - A $7.5 billion Abu Dhabi deal to buy Citigroup Inc (C.N) shares may have created a model for acquisitions by Gulf and other emerging-market investors scouring the ruins of the U.S. mortgage crisis for bargains.

The Abu Dhabi Investment Authority (ADIA) sought no role in managing Citi, allowing the world's wealthiest sovereign fund to invest as a saviour of the largest U.S. bank without the risk of being perceived in the United States as an Arab predator.

Investors from Dubai to China could be considering similar deals with cash-strapped U.S. banks, hoping to ride a recovery in their stocks and avoid the political barriers that could have been thrust in their path in better times, analysts said.

"There will be more such investments," said Giyas Gokkent, head of research at the National Bank of Abu Dhabi. "The other buyers will likely play the same white-knight role," he said of other Gulf Arab investments in Wall Street firms.

Citi, which could book $17.8 billion in second-half credit-market losses, said ADIA would buy 4.9 percent of stock, eventually becoming the largest shareholder of a bank that has lost 42.5 percent of its market value in the past five months.

Other Gulf investors, backed by $1.2 trillion in state reserves, say they could follow, depending on when they expect the worst of the crisis triggered by defaults on high-risk home loans to have passed.

Investment Corporation of Dubai said on November 20 it was looking to benefit from the U.S. crisis, but judged shares of Citigroup to be too expensive as were those of Merrill Lynch & Co MER.N, which reported the biggest credit losses after Citi.

DIFC Investments, the Dubai government agency that bought into Deutsche Bank (DBKGn.DE) this year, said last week it could invest in banks and property among other U.S. assets.

MINORITY STAKES

Dubai's state-owned private equity firm Istithmar said in September it was considering buying into two U.S. companies hit by exposure to subprime, or high-risk, mortgages. It did not name them.

These investments would likely be minority stakes that offer the buyers no say in how the banks are run, said Gokkent. Sovereign funds such ADIA, with an estimated $650 billion in assets, lack the expertise or desire to run a bank, he said.

"The idea is to capture growth for their investment portfolio," Gokkent said.

Funds and firms in the world's biggest oil-exporting region have been snapping up assets from Japan to Africa as their government-owners reap the windfall from a five-fold increase in crude prices since 2002.

Gulf investors have spent more than $70 billion on foreign acquisitions this year, twice as much as the record set in 2005, to reduce reliance on oil revenue.

Increasingly Gulf buyers are running into resistance from governments wary of allowing foreigners to control assets they say could affect their economic interests and national security.