US banking giant Citigroup sold its nearly 10-percent stake in India's biggest mortgage lender for $1.9 billion on Friday, ending a seven-year alliance and raising much-needed capital. Citigroup, the third-largest US lender by assets, said the sale of 145.3 million shares in Housing Development Finance Corp (HDFC) - the whole of its 9.85 percent stake - was "part of Citi's ongoing capital planning efforts."
Total proceeds from the sale to mainly foreign institutional investors were expected to be $1.9 billion, resulting in an after-tax gain of $722 million. "We are pleased with the results of our investment in HDFC," said Pramit Jhaveri, Citi India's chief executive, in a statement. The sale came as Citigroup faces a potential multi-billion-dollar writedown of its minority stake in Morgan Stanley Smith Barney brokerage.
"It's obvious Citi needed money and HDFC is an attractive asset they had," said Santosh Singh, a financial services analyst at Espirito Santo Securities. Citi may also have sold its stake to raise funds to help it conform to strict new global capital adequacy rules that will require lenders to keep higher reserves to absorb financial shocks, analysts said. Other global banks such as HSBC and Goldman Sachs have been selling Asian assets not regarded as "core investments" ahead of the new global Basel III capital adequacy rules that come into effect next year.
"Foreign banks are freeing up their overseas investments" to improve their capital base, said Jigar Shah, head of research, Kim Eng Securities. HDFC's stock plunged over six percent to a day's low of 665.30 - to bring shares broadly in line with the price at which Citi sold its stake. The shares later retraced to close down 3.45 percent at 676.20 rupees. Analysts called the fall a "kneejerk" reaction that did not reflect HDFC's fundamental value.
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