Citi exits HDFC with $722-million gain after tax

Citigroup Inc, the third largest lender by assets in the US, on Friday sold its entire 9.85 per cent stake in the country’s biggest housing finance company, Housing Development Finance Corporation (HDFC), for Rs 9,550 crore ($1.9 billion). The exit was meant to help the US bank shore up its balance sheet to meet the tighter Basel III requirements.

According to a release, Citi made a pre-tax gain of $1.1 billion (Rs 5,490 crore) and an after-tax gain of approximately $722 million (Rs 3,550 crore).

“The after-tax gain reflects Citi's tax liability to the US government,” said a Citi spokesperson.

The New York-based Citi sold a total of 145.3 million shares of HDFC at Rs 657.56 apiece through multiple block deals. “The sale of Citi’s remaining stake in HDFC is part of Citi’s ongoing capital planning efforts,” the bank said in a statement.

HDFC shares closed 3.62 per cent lower at Rs 675.9 on the National Stock Exchange (NSE) on Friday. The stock fell to as low as Rs 657.5 intra-day.

The transaction was at a six per cent discount to HDFC's closing price on Thursday, when Citi announced its exit plan. It had invited bids in the range of Rs 630-703.5 a share and received twice the demand than the shares of offer, according to brokers. Until yesterday, the HDFC stock had gained 7.6 per cent this year, underperforming the benchmark Sensex (which has added 17 per cent).

Citi, which was the largest foreign investor in HDFC, had first invested in 2005 but a significant portion was acquired when it bought Standard Life’s 9.3 per cent stake in HDFC for $673 million in 2006.

“We are pleased with the results of our investment in HDFC,” Citi India CEO Pramit Jhaveri said in a release. In June 2011, Citi had pared its stake in HDFC from 11.4 per cent to 9.85 per cent.

Besides Citi, private equity firm Carlyle had sold about 20 million shares in HDFC on February 1, raising about Rs 1,350 crore and nearly doubling the money from its 2007 investment in the lender.

In the past few weeks, global financial institutions, including Singapore’s sovereign fund Temasek Holdings, have sold stakes in Indian financial firms. Warburg Pincus had sold about 17.5 million shares in Kotak Mahindra Bank this month through open market deals to raise about $170 million.

Source: Business Standard