Mumbai - AFP
US banking giant Citigroup sold its nearly 10-percent stake in India\'s biggest mortgage lender for $1.9 billion on Friday, ending a seven-year alliance and raising much-needed capital. Citigroup, the third-largest US lender by assets, said the sale of 145.3 million shares in Housing Development Finance Corp (HDFC) -- the whole of its 9.85 percent stake -- was \"part of Citi\'s ongoing capital planning efforts.\" Total proceeds from the sale to mainly foreign institutional investors were expected to be $1.9 billion, resulting in an after-tax gain of $722 million. \"We are pleased with the results of our investment in HDFC,\" said Pramit Jhaveri, Citi India\'s chief executive, in a statement. The sale came as Citigroup faces a potential multi-billion-dollar writedown of its minority stake in Morgan Stanley Smith Barney brokerage. \"It\'s obvious Citi needed money and HDFC is an attractive asset they had,\" said Santosh Singh, a financial services analyst at Espirito Santo Securities. Citi may also have sold its stake to raise funds to help it conform to strict new global capital adequacy rules that will require lenders to keep higher reserves to absorb financial shocks, analysts said. Other global banks such as HSBC and Goldman Sachs have been selling Asian assets not regarded as \"core investments\" ahead of the new global Basel III capital adequacy rules that come into effect next year. \"Foreign banks are freeing up their overseas investments\" to improve their capital base, said Jigar Shah, head of research, Kim Eng Securities. HDFC\'s stock plunged over six percent to a day\'s low of 665.30 -- to bring shares broadly in line with the price at which Citi sold its stake. The shares later retraced to close down 3.45 percent at 676.20 rupees. Analysts called the fall a \"kneejerk\" reaction that did not reflect HDFC\'s fundamental value. HDFC, one of India\'s best-known blue-chip stocks, pioneered housing finance in India in the 1970s and has witnessed rapid growth. The sale coincided with a sharp rally by India\'s stock market which several foreign investors have seized on as a chance to sell their stakes in Indian financial institutions and realise profits. Earlier this month, Carlyle Group LP sold 1.3 percent of its stake in HDFC for about $270 million. Also this month, a unit of Singapore state investment company Temasek Holdings sold nearly 40 percent of its holding in India\'s ICICI Bank for $300 million. But Ravi Trivedy, a partner at KPMG India, said foreign investors remained \"deeply committed\" to India\'s financial services sector even with a lack of expected reforms by Prime Minister Manmohan Singh\'s Congress-led government. \"Some of these blue-chips (like HDFC) are the toughest to buy into,\" Trivedy said. Citi\'s HDFC stake purchase in 2005 marked the first major move by a US bank into India\'s domestic banking sector and was seen by observers as a foreign endorsement of the market\'s potential. But it was unable to transform its stake into a strategic investment and profit from HDFC\'s wide customer base to promote its products or become a player in India\'s real estate market amid a tight regulatory environment. The New York-based banking group will still offer its investment banking to credit cards services separately in India through its own name. It employs nearly 8,000 people at Citi branches across the country. \"The capital requirement of American banks has been increased and because Citi needs to shore up its capital, they sold their stake,\" HDFC vice chairman Keki Mistry told NDTV. \"The good thing is the demand for such a large issue was high.\"