Citigroup helped funnel $3.5bn to UAE state oil company

Citigroup helped raise $3.5bn for the UAE’s state oil company, one of the world’s biggest polluters, without it affecting the bank’s climate commitments.

The bank helped arrange a chain of deals that meant Abu Dhabi National Oil Company (Adnoc) received huge payouts as a major shareholder of chemicals companies Borouge and Fertiglobe.

“So on paper, the bank lent some money to a chemicals business,” a banker with knowledge of the deals said. “But in reality they handed billions to one of the largest oil producers.

“If you try and get a loan approved to an oil major, you get asked all sorts of questions: ‘Blah, blah, the ESG [environmental, social and governance] ranking of the borrower.’ Basically, it’s a huge pain to get organised. So if you want to lend to a chemicals company instead, it’s much easier.”

Because Citi was not helping raise finance for Adnoc directly, it did not have to account for the emissions associated with lending to a major polluter.

Citi has insisted on the importance of cutting emissions associated with its financing activities to net zero by 2050, with significant cuts from energy clients by 2030. In March 2021, on her first day as chief executive of Citi, Jane Fraser said: “As the world's most global bank, we can help drive the transition to a net zero economy and make good on the promise of the Paris Agreement.”

Banks are under growing pressure from customers and investors to reduce their financing of fossil fuel companies and to cut emissions associated with their business. A report out this week suggested coal, oil and gas companies’ extensive networks of subsidiaries, often in so-called “secrecy jurisdictions”, enable banks to obscure the true scale of their fossil fuel financing.

The Tax Justice Network report said that makes it increasingly difficult to ensure banks’ sustainability reporting is accurate and that they are adhering to their green policies.

Getting the deals done

Citi was part of a group of banks that loaned $4bn to Borouge in December 2021 as the chemicals company prepared to list its shares on the Abu Dhabi stock exchange, according to data from financial markets group LSEG.

Along with the other banks, Citi then helped coordinate the listing, which earned Adnoc $1.2bn from selling a portion of its shares in Borouge and $408m from special dividends.

In the share offer document, Borouge promised it would pay shareholders at least another $2.3bn in dividends in 2022 and 2023 meaning Adnoc – the company’s biggest shareholder – would earn a further $1.2bn in dividends.

In total, Adnoc was in line to receive at least $2.8bn from Borouge after Citi and other banks loaned the chemicals company $4bn.

The banker pointed to other deals in which banks helped raise finance for chemicals companies, resulting in large payouts to their oil company owners. In 2021, Citi was among a group of banks that arranged a $900m loan and listing for Fertiglobe, a fertiliser company part-owned by Adnoc.

As a result of those deals, Adnoc received almost $700m from share sales and special dividends. Since the creation of Fertiglobe in 2019, the chemicals company has transferred a total of $1.5bn in dividends to its major shareholder, Adnoc.

Wider concerns

James Vaccaro, former group director of strategy at Triodos Bank, which is focused on ethical finance, said: “Without adequate protections through regulations or assured reporting specifically preventing this, then it’s not a surprise.”

The deals were lucrative for Citi, which shared $30m in fees with the other banks working on the Borouge share sale and up to $14m with the banks working for Fertiglobe, on top of the fees they earned on the loans.

Lucie Pinson, executive director of Reclaim Finance, a group campaigning for banks to stop financing fossil fuels, said the deals raised concerns about banks and investors making public climate commitments but continuing to help fund major emitters. “You have to wonder how many other banks are doing similar things,” she said.

Citigroup and Fertiglobe both declined to comment.

Borouge confirmed Citi’s participation in the $4bn loan, which it said was “part of the overall strategic financing considerations for the company” ahead of the share sale. Adnoc said Borouge had “a commitment to pay dividends to its majority shareholders” to align with market expectations.

Citi has come under sustained attack from campaigners for providing almost $400bn to fossil fuel companies over the last eight years, according to the Rainforest Action Network, making it the second largest funder of fossil fuels in the world. This summer, climate activists blocked entrances to Citi's headquarters in New York, leading to a number of arrests.

Scientists agree that no new oil and gas assets should be approved for development after 2021 to prevent global temperatures from rising above 1.5°C, in line with the Paris Agreement. Adnoc’s production plans dramatically overshoot these limits, with the stated aim of increasing oil production by 25% by 2030.