Standard Life to sell HDFC stake to Citi

Citigroup will buy Standard Life's 9.27 per cent stake in Housing Development Finance Company (HDFC), the country's biggest home loan provider, for about Rs 3,021 crore.

With this, Citigroup's stake in HDFC will rise to close to 13 per cent. The US financial services major will now have a special director on the board of the Indian mortgage lender. Citibank India head Sanjay Nayar, however, declined to comment.

The deal marks the exit of Standard Life from HDFC and a step towards increasing its holding in the insurance joint venture HDFC Standard Life Insurance to 26 per cent from the current 18.24.

"Standard Life will raise its stake in the insurance venture to 26 per cent, the maximum permissible under the existing foreign direct invest norms. The company will raise it further to 49 per cent as and when the FDI limit goes up," HDFC Chairman Deepak Parekh told Business Standard.

HDFC Standard Life Managing Director Deepak Swatlekar said Standard Life had already been in talks with the insurance company for raising its stake.

The Insurance Regulatory and Development Authority (IRDA) had earlier disallowed Standard Life from holding 26 per cent stake in the life insurance joint venture as it had an indirect interest in the insurance venture through its stake in HDFC, the promoter of HDFC Standard Life.

The proposed sell-off is significant in the run-up to Standard Life's corporatisation and entry into capital market through an equity float. "It is the right time to book profit and concentrate on its core business -- insurance," an industry analyst said.

HDFC shares today closed 0.46 per cent down at Rs 1,305.80 per share on the BSE. At this price, its market capitalisation is Rs 32,587.55 crore.

Standard Life initially bought over 18 per cent stake in the insurance venture at Rs 10 per share without any premium. Going by the pricing formula, it will have to cover HDFC's return on equity (RoE) for each year for the last five years ever since the insurance venture came into being when it buys additional stake.

"This is because HDFC has been putting in capital on Standard Life's behalf in the insurance subsidiary," said Keki Mistry, HDFC managing director.

Following this formula, Standard Life may have to pay about Rs 125 crore to pick up additional 7.76 per cent stake in HDFC Standard Life (at about Rs 26 for 4.1 crore shares). HDFC Standard Life has an equity base of Rs 620 crore.

Standard Life had picked up 10 per cent stake in HDFC in two tranches in 1995 and 2000 through the FDI route and subsequently raised it by another 4.81 per cen through open market buying in 2002-03. Last year it had sold close to 5 per cent to CLSA.

The HDFC board today authorised Parekh to write a letter to the Foreign Investment Promotion Board (FIPB) granting the corporation's consent for the transfer of shares to Citigroup.