The Australian arm of Citigroup (C) recently priced a new 3-year bond issue at AUD 1.25 billion ($1 billion) guaranteed by the Australian Government. The bonds are priced at 43 basis points over swap and Bank Bill Swap (BBSW) reference rate.
The issue comprises fixed-rate notes worth AUD 450 million (sold mainly to asset managers) and floating-rate notes worth AUD 800 million (sold mostly to banks). Over 30 investors participated in the offer, pushing the final book size to AUD 1.5 billion which was later scaled back to AUD 1.25 billion. Citigroup had set the margin at 43 basis points, the bottom of an initial range of 43–47 basis points, based on strong demand.
About 85% of the notes were sold in Australia and the rest to investors in Europe. In June, Citigroup also sold AUD 1.3 billion of 3-year notes backed by the Government. It plans to sell some more bonds in Australia with a 3–5 year time frame as it attracted new investors both in Australia and Europe in the current issue.
Citigroup was the only book runner for the offer. However, it appointed a group of banks to help manage the sale. ANZ was appointed senior co-manager, whereas Commonwealth Bank of Australia, Macquarie Bank and National Australia Bank acted as co-managers and Westpac Institutional Bank acted as the junior co-manager.
Citigroup is currently undergoing major restructuring and plans to hold its assets in Citi Holdings. However, there remains a lot of uncertainty regarding the valuation of these assets in the wake of increasing losses. Despite an overall attractive valuation and elevated capital levels, opacity around the ultimate estimation of Citi Holdings will probably remain a drag on the shares in the near term.
As such, we maintain a long-term Neutral recommendation on the shares of Citigroup.
Read the full analyst report on “C”
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