INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

CITI BUYS 9% MORE IN HDFC

  THE Indian financial services sector is witnessing one of the most dramatic stories. Citigroup, the world's largest financial services player, has acquired 9.27% in HDFC — India's top mortgage lender and one of the most valuable brands. The Rs 3,020-crore deal,once cleared by the regulatory authorities, will make Citigroup the biggest shareholder in HDFC. Citi will buy the shares held by struggling UK insurer Standard Life.

Citigroup already holds 3.59% in HDFC. The proposed transaction with Standard Life will take Citigroup's stake in HDFC to a little below 13%. Interestingly, a March 27 research report by Citi had put a ‘Sell' on HDFC at Rs 1,250. On Tuesday, the scrip closed at Rs 1,305, after a high of Rs 1,340.

Citigroup refused to comment on the deal which is widely perceived to be a strategic investment. Citi has sought a board seat in HDFC which Stanlife never had. Market observers are not ruling out an open offer by Citigroup.

“It's a long term, full service play, where Citi will get indirect exposures to businesses like insurance, asset management and banking,” said a senior investment banker.

HDFC own 21.99% holding in HDFC Bank — one of the most expensive banking scrips. While Citi will emerge as the biggest shareholder in HDFC, it will have no direct holding in HDFC Bank, in which DBS the Singapore-based bank acquired over 4%. In the past, the market has often speculated about a merger of HDFC and HDFC Bank. In the medium term such speculation could be rekindled.

Significantly, Citi has chosen the FDI route to buy into HDFC. While an FII entity cannot hold more than 10%, a foreign direct investor can buy 100% shares in a non-banking finance company.

Standard Life, which had invested Rs 350 crore in HDFC, has been looking to realise value from its investments to beef up its financials before it goes public next month. HDFC, which was originally promoted by domestic financial institution including the erstwhile ICICI is today a professional company with no identifiable promoters. The company is also largely foreign owned, with close to 79.3% being held by foreigners.