CITI SELLS HDFC STAKE - DON'T WORRY, BE HAPPY!
By Ruma Dubey
The market has been agog with news today about HDFC. The stock was down in the red throughout the day. The stock plunged after Citigroup Inc announced that it plans to sell its entire stake of 9.9% and raise about $2 billion as part of the U.S. bank's efforts to shore up its capital base. The good news is that it has received bids for more than twice the number of shares it wants to sell. By the end of the day, it had managed to sell 14.53 crore HDFC shares at Rs.657.56 each, raising over Rs.9554 crore or a whopping US$1.9 billion.
This stake sale is in no way a blotch for HDFC; its fundamentals remain strong as ever and could only get stronger. The very fact that Citi could sell this large chunk of shares and there were twice the number of bidders, reflects the fancy for the stock. More importantly, these shares, instead of being held as one big chunk by Citi is now distributed between global and domestic institutions. A large number of global funds as well as some local financial institutions are said to be the buyers. If there had been no buyers, that too for a company as strong as HDFC, that would then have been worrying. Here it is just a deal for Citi which more than doubled up its money in this stake sale alone.
PE firms or institutions like Citi selling stake neither undermines the fundamentals of the company nor does it cast any aspersions about the future of the company. It is very simple – the PE fund invested, today the prices have doubled and it sells, which is what anyone who is out to make money would do.
On 1st Feb, Carlyle sold over a fourth of its stake its stake in HDFC for Rs 1,355 crore. In 2007, Carlyle bought 15.25 million shares by paying Rs.2,638crore. The shares were later split in 1:5 ratio, before which Carlyle also picked up some shares in October-December 2008 for another Rs 20-30 crore. Till end of Q3FY12, Carlyle held 5.22% stake in HDFC and its average price was at Rs.344 per share. And on 1st Feb, it sold part of it for Rs.677.21/share, more than doubling its profits in three years. It continues to hold 57 million shares or nearly 4% stake in HDFC.
The other PE exit was from Kotak Mahindra Bank where Warburg Pincus plans sold part of its stake and it wants to exit completely. It sold 2.4% stake in the bank for Rs 857 crore, average price of Rs.490/share. Though the exact acquisition price of Warburg is not known, it is stated to have more than quadrupled its profits. It continues to hold 3.5% stake in the company.
The news is that Singapore sovereign funds Temasek Holdings and Government of Singapore Investment Corp (GIC) are looking to sell part or all of their holdings in ICICI Bank. Temasek has a 3.5% stake and GIC holds 1.8% stake. Even Rakesh Jhunjhunwala selling his entire stake in Apetch and making a killing is a development in the same vein as the exit of PE funds.
Why this sudden exodus? Because the wait has been too long, they want to exit at every opportune rise. 2011 was lackluster for PE funds – neither great opportunities to invest nor great prices to make an exit from earlier investments. During 2011, India Inc saw 74 deals where the PE firms sold their stakes in domestic companies, a decline of 47% over the previous year. In 2010, there were 139 such deals. PE firms are now under pressure to show returns on their investments and hence at every rise, we could get news of such block deals. This phenomenon is not just restricted to India; all over around the emerging markets, there is news if block deals. KPMG expects around $95 billion in Indian PE investments made in the peak period, between 2006 to 2008, to come up for sale over the next three years. Realty firms could see the exodus continue into 2012 too. According to property consultant Jones Lang LaSalle (JLL), nearly Rs 15,840 crore worth of PE funds are set to exit from the Indian real estate sector in 2012.
So does this mean that we should brace for a sell out? Or does it mean that the PE funds are quitting on India? A vehement “no” to both these doubts! Yes, there will be PE funds making an exit; they will make an exit when they see that they are making a profit. They are not here because they love India; they are here to make money and when they feel they have to book profits, they will. And PE funds are definitely not quitting on India. Infact other PE funds around the world would get enticed by the amount of money these funds have made and that actually puts India in a more favourable light.
Every time a PE fund has sold, the good news is that it has found a ready buyer; as long there is a buyer available, really, there is no cause for worry.