Citigroup faces $26m loss on Australian block trade

(Bloomberg) — Citigroup faces a potential loss of up to A$41 million ($26 million) after it fails to fully sell a large stake in Australia’s Goodman Group, which it underwrote for China’s sovereign wealth fund, according to people familiar with the matter. loss. Be familiar with this matter.

Late on Tuesday, the bank sold 50.4 million Goodman shares to China Investment Corporation at an underwriting floor price of A$37.55. The terms of the transaction show that the share price is only a 1.5% discount to the previous closing price of A$38.12.

When investors balked at the price range, Citigroup relaunched the deal with a deeper discount of 3.3%, according to people familiar with the matter. The person spoke on condition of anonymity because the information is not public.

That was still not enough for buyers, with the Wall Street bank ultimately selling just 23.4 million shares at A$36.40, a 4.5% discount to the previous closing price, people familiar with the matter said. The cross on the exchange matches it. Given that Citigroup underwrote the entire transaction at A$37.55, the loss on the transaction was A$27 million.

The bank is then left with the 27 million Goodman shares it bought from China Investment Corporation, which were worth just under $1 billion as of Wednesday’s closing price of $37.02, meaning the bank also faces about $14.3 million on the books. Loss. Banks can recoup some of their losses if share prices recover or hedging measures are taken.

Representatives for Citigroup declined to comment. The Australian Financial Review earlier reported the potential losses.

Citigroup’s move at the end of the year is risky as banks typically try to protect revenue. The bank ranked No. 1 among managers of equities and rights issues in Australia and New Zealand this year, with a market share of nearly 14%, according to data compiled by Bloomberg.

CIC will not suffer losses as the block trades are fully underwritten. For more than a decade, a unit of the sovereign wealth fund has been a shareholder in Goodman, which owns and develops warehouses, data centers and other commercial real estate. The 50.4 million shares accounted for about one-third of CIC’s ownership in the Sydney-based group as of July.

——With assistance from Georgina McKay, Dave Sebastian, Serena Ng, and Dingmin Zhang.

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