Global banking major Citigroup Inc. has sold 1.5 per cent stake in India’s largest mortgage lender Housing Development Finance Corp (HDFC) to bring its holding down to 9.9 per cent. Citi said that it would continue to hold on to its remaining stake in HDFC and the sale was done in order to meet Basel III capital rules. The transaction resulted in a pre-tax profit of approximately $160 million for the Citigroup.

Stock exchange data showed that there was a block deal of 16.5 million shares at Rs 643 each, which would amount to Rs 1,060.95 crore ($232 million). The share price of HDFC closed at Rs 648.50 at 3:15 pm today, down by 1.37 per cent.

According to VCCircle estimates, Citigroup has invested Rs 4,400-Rs 4,900 crore in HDFC in various tranches which brings its average acquisition price at Rs 265-Rs 295 per share. As per this, Citigroup is currently sitting at over 2x of its investment.

Citigroup had picked up 9.27 per cent stake in HDFC in May, 2006, from its life insurance partner, Standard Life. The UK-based firm had sold its stake in HDFC for Rs 3,020 crore as it was facing financial problems at home. Citigroup had already built up a 3-4 per cent stake in HDFC at that point of time.

In 2007, along with private equity major Carlyle Group, Citigroup participated in the Rs 3,114 crore ($767 million) investment in HDFC. As of March, 2011, Citi held 11.38 per cent stake in HDFC through Citigroup Strategic Holdings Mauritius (8.83%) and Citigroup Holdings Mauritius (2.55%). Carlyle now holds a 5.25 per cent stake and its average investment price comes at Rs 344 per share.

Mumbai-based HDFC is a leader in housing finance and mortgages with $37 billion of total assets as of March 31, 2011. It also holds 23 per cent stake in HDFC Bank, one of India’s largest four banks, besides stakes in the group’s insurance and asset management ventures.

“We have been an investor in HDFC since 2005 and continue to have a very strong and productive relationship with its senior management team. This transaction was motivated by our capital planning as we prepare for the implementation of Basel III, rather than strategic considerations,” said John Gerspach, CFO of the Citigroup.

“Citi remains deeply committed to India, and we continue to invest in our franchise in this very important market,” said Pramit Jhaveri, CEO of Citi India. “We have unique experience, deep relationships and local insights, all of which are strong competitive advantages.”

Citi is one of the largest foreign banks in India, employing nearly 8,000 people with 42 full-service Citibank branches in 30 cities and a market share of greater than 20 per cent in credit card spends. Over the past three years, Citi has helped raise nearly $60 billion from the capital markets for its clients in India and advised on India-related M&A worth around $25 billion.

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