Citigroup has dropped out of the group of banks providing a $1.5 billion bridge loan to Gulf-based Adeptio for its planned purchase of a majority stake in Kuwait Food Co (Americana), three sources aware of the matter said on Thursday.
The US bank failed to secure internal approval to participate in the deal, with two of the sources indicating that Americana's business dealings in Iran had raised compliance concerns and was one of the reasons for the bank's withdrawal.
Its decision to walk away highlights that while sanctions related to Iran's nuclear programme were lifted in January, other financial restrictions imposed by the United States on the Islamic Republic continue to impact on trading with the country.
Citi was one of the lead institutions arranging the 18-month loan for Adeptio, a group of investors who include Mohamed Alabbar, chairman of Emaar Properties.
All the sources said that Citi's withdrawal would not ultimately impact the buyer's ability to close the financing as other banks would step in to fill the void.
Citi declined to comment. Alabbar's office, in a short statement, said: "We are oversubscribed, multiple times." It gave no other details.
Adeptio has agreed to purchase a 69 percent stake in Americana from an investment vehicle called Al Khair for Stocks and Real Estate, controlled by the al-Kharafi family, one of the Gulf state's most prominent merchant families.
While the price Adeptio is paying for the stake has not been disclosed, Americana has a current market value of $3.33 billion according to Thomson Reuters data.
To help finance the transaction, Adeptio aimed to secure the short-term loan from a group of banks including Citi, Standard Chartered, Credit Suisse, Emirates NBD and First Gulf Bank. This bridge loan would be refinanced later with longer-term funding.
The food group owns the Middle East franchises for fast food chains KFC and Pizza Hut, as well as having a frozen food business and other units. It is present in 13 countries including Iran, where it owns 90 percent of restaurateur Khosh Taam International Food Company, according to its annual report.
Concerns about financing business in Iran is particularly prominent for international banks as falling foul of these rulings could result in American authorities stripping lenders of their ability to make transactions in U.S. dollars.
Despite Citi's exit, the loan was expected to be completed, either through the existing group of banks putting in additional cash or new banks being brought into the lending consortium.
Americana's chairman said this week that the fact Adeptio had not asked for an extension to a due diligence period, which ran until April 7, was a positive sign for the completion of the acquisition.