Citigroup ( C) on Thursday completed the first half of its much-discussed exchange offer that will make the U.S. government its largest stakeholder.

The New York-based financial institution, which has received $45 billion from the Troubled Asset Relief Program last year, said that private preferred holders of roughly $12.5 billion worth of convertible preferred securities were exchanged for interim securities and warrants on Thursday.

Former chairman Sandy Weill, the Government of Singapore Investment Corp. and Saudi Arabian Prince Alwaleed Bin Talal are among the private holders that agreed to the exchange.

The U.S. government, which agreed to exchange up to $25 billion worth of preferred securities, completed half of that on Thursday by exchanging $12.5 billion of non-convertible preferred securities for interim securities and warrants. It will also exchange its remaining preferred securities into trust preferred securities bearing an annual coupon of 8%, the company said. Once completed, the government will own approximately 34% of the troubled financial institution.

Citi said in June that assuming it received full participation of holders of convertible and non-convertible public preferred and trust preferred securities in the exchange offers, the company will convert approximately $58 billion worth of preferred stock and trust preferred securities into common shares.

The interim securities and warrants will convert to common shares once shareholders approve of the increase in Citi's authorized common stock, the company said. The exchange offer is expected to result in as many as 17.4 billion new shares issued, bringing Citi's shares outstanding to roughly 23 billion shares.

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