The US banking giant Citigroup has pared over a third of its 45% holding in Indian software company Polaris Software Lab through open market during the last one year, leading to speculation on its exit plans from the public listed firm.
Citigroup, the single largest investor in Polaris has sold around 16% stake in the company since the beginning of 2009. According to VCCircle estimates, it has disposed off 15.8 million shares of Polaris for Rs 260 crore.
Citigroup held 44.1 million shares in Polaris as of December 31, 2008, through Citigroup Global Market, Orbitech Employees Welfare Trust, and Orbitech Limited. It has come down to 28.3 million shares, as of December 30 2009.
One of the reason why Citigroup is selling through open market could be the arrangement with the local promoter Arun Jain. In a statement issued last year, Arun Jain had said that Citigroup is a strategic investor in Polaris: “As per our agreement, Citi cannot take decisions to dilute its investment without the prior approval of Polaris’ management.” Indian promoters held 29.1% at the end of September 30.
Citigroup became the shareholder of Polaris through merger of its BPO arm OrbiTech Solutions with the Indian firm in 2002. At that time, Polaris was valued at $210 million and OrbiTech was valued at $ 246.75 million (over Rs 1,100 crore) – 17.5% more than Polaris.
Apparently the shares post merger of the two firms were indirectly owned through Citigroup Venture Capital. Given that the current value of the remaining holding of Citigroup is around Rs 500 crore and that it has raised Rs 260 odd crore from sale of the remaining portion, the banking group has taken a haircut of over 25% in this deal over a seven year period. Incidentally, the Polaris scrip never really managed to claw back to the the highs seen in 2002-03 period. Even during the bull run of the 2005-07 the stock had been an underpeformer.
Founded in 1993 by Arun Jain, Polaris specialises in banking and insurance software. At today’s close of Rs 184.3 per share, Polaris commands a market-cap of around Rs 1,800 crore.