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Citi's rare exchangeable pleases the regulator

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Citigroup issued a rare Polish exchangeable bond in November, a $437 million three-year security that is convertible into shares in Bank Handlowy, Citi's Polish subsidiary.

The bond was the clever solution to a thorny regulatory problem. According to the public securities law in Poland, if an investor has a stake of 50% or more in a company, it has to offer to buy the remaining shares. In line with this law, Citigroup bid for the remaining shares in Handlowy about three years ago, ending up with about 89% of the shares in the bank.

However, according to banking regulations, foreign banks are not encouraged to hold more than 75% of domestic banks.

Polish regulators have for some years been pressuring both Citigroup and ING to reduce the stakes in their respective subsidiaries to 75%.

Artur Szeski, analyst at CDM Pekao, says: "Citi said it would decrease its stake via a secondary offering, but the transaction was postponed and postponed again. The problem was, the bank didn't want to make a loss. It bought the shares at Zl70 and would have to sell at Zl60."