Citi hits the sovereign wealth ATM

Overseas stock markets got a shot in the arm after Citi (C) said it secured a $7.5 billion cash infusion from Abu Dhabi’s sovereign wealth fund. Citi will sell convertible equity units yielding 11% to the Abu Dhabi Investment Authority, which will become the bank’s biggest shareholder at 4.9%, Bloomberg reports. The bank says the units are manditorily convertible into common shares starting in 2010, at prices just above the recent trading level of Citi’s stock. The sale allows Citi to shore up its capital base just weeks after it announced as much as $11 billion in losses tied to subprime mortgages and collateralized debt obligations.

“This investment, from one of the world’s leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business,” Citi’s interim chief, Win Bischoff, said in a statement late Monday night.

Stocks rose and Treasury bonds fell on the news, which helped to dispel a bit of the fear that had built up in the markets in a morose Monday session that took big indexes down 10% below their recent highs. Monday had started with leading economists warning that a building crisis in the credit and housing markets appeared increasingly likely to lead to other ill effects in the economy. Still, despite the good news from Citi’s deal — which should mean the bank doesn’t need to cut its 7% common stock dividend, at least for now — Yves Smith of Naked Capitalism shudders at the stiff terms. “Both the common dividend and terms of the Abu Dhabi deal,” he writes, “show how much doubt there is over the bank’s prospects.”