News: Citi, HDFC Bank draw up plans for closer ties
(TNN 18/09/2006) Mumbai - Citi, the world’s largest financial services group, and India’s leading mortgage bank HDFC Bank are working to build closer ties. After Citi’s nearly $1-bn investment to acquire a stake and board berth in HDFC, contours are being drawn of a new relationship that will give HDFC access to a bigger market and resources, while Citigroup will derive certain business advantages.
Citigroup holds over a 12% equity in HDFC after it acquired 9.27% in the company from the secondary market last May. The amount Citigroup has spent to buy HDFC shares is almost equal to its investment in the Indian banking operations till now.
Later this month, HDFC will induct Vijay Kelkar, former finance secretary, as its nominee on the HDFC
board. Mr Kelkar is also the chairman of Citigroup’s local advisory committee.
Under the relationship that is being explored, HDFC will enjoy certain preference to borrow out of the fresh capital that Citigroup would bring into India; Citibank’s overseas branches with NRI desks may be utilised to mobilise resources for HDFC’s property fund and sell HDFC loan products. And, Citi will be the preferred investment bank for HDFC as and when the local institution goes for issuances like ADR, GDR, foreign currency convertible bonds and float property funds.
HDFC chairman Deepak Parekh said, “There would be an arms length relationship in all businesses that we do....the rates and fees should be acceptable to both the parties.” Citigroup did not comment on the subject. But is this the harbinger of a bigger deal in future, something that reflects Citigroup’s ambitions in India?
Even since Citi raised its holding in HDFC, there have been rumours that the US bank has its eyes on HDFC Bank — one of the country’s most valuable banks, where the promoter HDFC owns more than a 21% equity. Banking circles even talked about the possibility that Citi may enjoy the first right of refusal, if HDFC ever decides to sell in the bank.
However, HDFC categorically denies that there is any such understanding with Citi.
While present regulations will not allow any such deal, the industry feels that Citi’s presence even as a financial investor and subsequent relationships with HDFC could dissuade other global banks interested in HDFC Bank post-’09, when the sector is opened up for M&As.
As of now, the present relationships that are being struck would benefit both the groups. For HDFC, easier resources will soften the pressure on cost of fund in a rising interest rate regime, while many of the group’s investment banking mandates will go to Citi.
Already, Citi has been appointed as a banker for HDFC’s real estate fund. Over 50 Citi branches across the world have NRI desks. Given the severe restrictions on external commercial borrowings, HDFC may consider tapping the ADR market next year. The company is moving towards making its accounts US GAAP-complaint.
Citigroup holds over a 12% equity in HDFC after it acquired 9.27% in the company from the secondary market last May. The amount Citigroup has spent to buy HDFC shares is almost equal to its investment in the Indian banking operations till now.
Later this month, HDFC will induct Vijay Kelkar, former finance secretary, as its nominee on the HDFC
board. Mr Kelkar is also the chairman of Citigroup’s local advisory committee.
Under the relationship that is being explored, HDFC will enjoy certain preference to borrow out of the fresh capital that Citigroup would bring into India; Citibank’s overseas branches with NRI desks may be utilised to mobilise resources for HDFC’s property fund and sell HDFC loan products. And, Citi will be the preferred investment bank for HDFC as and when the local institution goes for issuances like ADR, GDR, foreign currency convertible bonds and float property funds.
HDFC chairman Deepak Parekh said, “There would be an arms length relationship in all businesses that we do....the rates and fees should be acceptable to both the parties.” Citigroup did not comment on the subject. But is this the harbinger of a bigger deal in future, something that reflects Citigroup’s ambitions in India?
Even since Citi raised its holding in HDFC, there have been rumours that the US bank has its eyes on HDFC Bank — one of the country’s most valuable banks, where the promoter HDFC owns more than a 21% equity. Banking circles even talked about the possibility that Citi may enjoy the first right of refusal, if HDFC ever decides to sell in the bank.
However, HDFC categorically denies that there is any such understanding with Citi.
While present regulations will not allow any such deal, the industry feels that Citi’s presence even as a financial investor and subsequent relationships with HDFC could dissuade other global banks interested in HDFC Bank post-’09, when the sector is opened up for M&As.
As of now, the present relationships that are being struck would benefit both the groups. For HDFC, easier resources will soften the pressure on cost of fund in a rising interest rate regime, while many of the group’s investment banking mandates will go to Citi.
Already, Citi has been appointed as a banker for HDFC’s real estate fund. Over 50 Citi branches across the world have NRI desks. Given the severe restrictions on external commercial borrowings, HDFC may consider tapping the ADR market next year. The company is moving towards making its accounts US GAAP-complaint.
posted by InCar Group Press Room at 13:35
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