MUMBAI — Citigroup Inc. Friday sold its entire stake in Indian mortgage lender Housing Development Finance Corp. for $1.9 billion that will likely help the U.S. banking giant improve its capital to meet strict international rules.
The New York bank sold 145.3 million shares, or HDFC's 9.85% stake, through block deals at INR657.56 a share, or 6.1% below the stock's closing price Thursday. The sale is expected to result in a gain of $1.1 billion before tax and about $722 million after tax, Citigroup said in a statement.
HDFC's shares were down 4.1% at INR671.70 on the Bombay Stock Exchange in afternoon trading, underperforming the Sensitive Index's 0.5% fall.
The sale comes on the back of buoyant Indian markets, following a horrid 2011 — the benchmark is up 16% this year, after losing nearly 25% in 2011 — and as Citigroup faces a potential write-down on its minority stake in the Morgan Stanley Smith Barney brokerage venture.
While Citigroup didn't give reasons for the sale, HDFC Chief Executive Keki Mistry cited tough global regulations that require lenders to keep aside more capital buffers to absorb potential financial stress as a reason.
"The sale has nothing to do with the company [HDFC]. It's no reflection on the performance of HDFC," Mistry told television channel ET NOW.
"We've been very happy with Citi as shareholders but at the end of the day, there was always that overhang on the stock that at some point Citi would need to sell shares to shore up their own capital requirement," he said.
Buyers weren't immediately known, but Mistry said they included mainly "long-only" funds, and some local entities.
This is the second time within a month that a significant minority shareholder has pared its stake in HDFC. On Feb. 1, Carlyle Group sold about a quarter of the 5.6% stake it held in the mortgage lender for $273.4 million.
Citigroup's initial 2005 stake purchase grabbed headlines in both countries: In the U.S. for being a major move into India by an American bank; and in India as a milestone for the apparently immense potential of the local market.
But Citigroup, which offers services from banking to investment banking to credit cards under its own name locally, hasn't been able to get the strategic advantages it expected, such as giving it a stronger presence in the country's fast-growing real-estate market or benefiting from HDFC's wide customer base to push their products, analysts said.
Citigroup held as much as an 11.4% stake in HDFC as late as July, when it reduced the holding to 9.85%.
Meanwhile, the deal has vaulted Citigroup, which also underwrote the sale, to the top of the league tables in the region and India.
League tables rank investment banks by value of deals they advise on.
As of Friday, according to data provider Dealogic, Citigroup was the top bookrunner for equity fundraising in Asia excluding Japan so far this year, having advised on $2.3 billion of equity capital markets deals. That was ahead of Chinese brokerage CITIC Securities, which advised on $867 million of initial public offerings and follow-on deals.
In India, Citigroup topped equity capital markets rankings, way ahead of Deutsche Bank, so far this year.