Talking about returns in this market will be like a fresh whiff of air. Bank Muscat has made a neat 7x return from its investment in Centurion Bank (now merged with HDFC Bank) in a little less than six years. The largest lender in Oman has disclosed that it has sold 81% of its holding in HDFC Bank (which it was allotted after HDFC Bank merged Centurion Bank of Punjab with itself last year) with a pre-tax gain of 39 million Oman Rials. This works out to Bank Muscat selling 1.7% of HDFC Bank for around Rs 590 crore.

What is interesting is that Bank Muscat has not just beaten the Sensex handsomely (which has gone up three times in the same period), it has also beaten HDFC Bank’s own long term investors. This is because if it had invested the same money in HDFC Bank when it put in money in the loss making Centurion Bank then it would have made 3.5x on its investments as against 7x now.

Here’s how: Bank Muscat had invested Rs 75 crore in Centurion Bank originally (including Rs 15 crore worth of its Bangalore branch which was merged with Centurion Bank). It had invested this amount in addition to what Indian partner Sabre Capital brought in to take-over the bank during 2003-04.

Thereafter it participated in a rights issue wherein it is estimated to have invested another Rs 29.2 crore. This takes total investment by Bank Muscat to Rs 104 crore in Centurion Bank (which became Centurion Bank of Punjab before it merged with HDFC Bank).

After HDFC Bank acquired and merged Centurion with itself, Bank Muscat held about 9 million shares of India’s second largest private bank which was 2.13% of the total equity base as of December 31, 2008.

Now Bank Muscat has said it has sold 81% of this which means it has sold off around 7.3 million shares to cash out Rs 590 crore odd at an average price of Rs 807 per share. Its average cost of acquisition of HDFC Bank shares works out to Rs 115 as against the ruling price of Rs 885 (as of Monday). It still holds around 1.7 million shares of HDFC Bank which is worth Rs 152 crore against their allotment cost of Rs 19.8 crore.

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