Citigroup’s stake in HDFC is regarded as a strategic move to position itself for making a bid for HDFC Bank as and when regulations allow.
MUMBAI: Citigroup, the world’s largest bank with global assets of nearly $1,500 billion, has obtained a toehold in the country’s second-largest private sector bank, HDFC Bank, by buying a 9% stake in its promoter, Housing Development Finance Corporation (HDFC).
Citigroup acquired its 9% stake in HDFC, valued at Rs 3,100 crore at current market prices, from Standard Life. If the government clears this deal, Citigroup will not only be acquiring a piece of India’s pioneer housing finance company, but also an indirect stake in HDFC Bank. HDFC owns about 22% in its bank.
As for Standard Life, it will use a part of the stake proceeds to increase in holdings in the insurance joint venture, HDFC Standard Life. Its original investment in HDFC has, thus, appreciated nearly 10-fold in as many years.
The HDFC board, which met on Tuesday to consider the annual results, has approved the sale of Standard Life’s stake to Citigroup, subject to the usual regulatory approvals. It has also permitted Citigroup to nominate a board member.
In a statement, HDFC said its board “had further authorised the chairman to issue a letter to the Foreign Investment Promotion Board (FIPB) granting the corporation’s consent for the said transfer. In the event the said transfer is approved…Citigroup may nominate a special director on the corporation’s board to be appointed in terms of the memorandum and articles of the corporation”. HDFC chairman Deepak Parekh’s office did not return calls from DNA for clarifications.
Analysts say that Citigroup has for long been considering the purchase of a new-generation Indian bank, but current banking regulations do not permit it. A couple of years ago, HSBC took up around 14% in UTI Bank, but had to exit when the Reserve Bank of India blocked the move.
Citigroup’s stake in HDFC is regarded as a strategic move to position itself for making a bid for HDFC Bank as and when regulations allow. It is widely believed that takeover regulations will be eased by 2009.
By cleverly acquiring a stake in a housing finance company, Citigroup faces only indirect scrutiny from the Reserve Bank. Housing finance is regulated by the National Housing Bank, a Reserve Bank subsidiary.
“The investment is significant. It shows a belief and commitment to the India story”, says Jignesh Shah, head of equity at ABN Amro private equity. Citigroup has marked out India as a major growth market ever since its new chief executive, Charles O. Prince, better known as Chuck Prince took over.
Prince visited Mumbai and Delhi last October. During his two-day stay, he met officials from the finance ministry and the Reserve Bank, apart from bankers and corporate heads.
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