Omans largest lender Bank Muscat will sell its entire stake in Indias HDFC Bank as it seeks cash to weather a possible rise in provisions this year as the financial crisis bites. Banks across the Gulf, the worlds biggest oil-exporting region, have booked provisions for bad loans and written down investments as a global financial crisis and slump in oil prices brought to an end a regional economic boom late last year.
Shares in Bank Muscat, suspended ahead of the news, have surged almost 20 percent in the last two days as investors bet the bank could sell all or part of its near 3 percent stake in HDFC to raise funds before the end of the quarter. The stock was down 7.75 percent at 0632 GMT, after it resumed trading.
"We decided to sell our stake in HDFC Bank, India over a period of time," the company said in a statement on the bourse website, adding that the price and timeframe depend on market conditions.
"(To) date the bank has disposed 40 percent approximately of its stake." Sunil Dhall, a vice-president at Muscat-based Gulf Baader Capital Markets, said in a research note on Monday Bank Muscat held a 2.67 percent stake in HDFC. That could be worth 9.48 billion Indian rupees ($185.3 million) based on Fridays closing price of 834.55 rupees per share, according to Reuters calculations.
Reuters data shows that the bank had 425.38 million shares outstanding as of March 5. "The profit on stake sale will flow through the income statements and this would give comfort to additional losses expected from investments during first quarter of 2009 in addition to providing comfort to its capital adequacy levels," Dhall said.
The lender also said it expected 4 million rials ($10.39 million) to 7 million rials in losses in the first quarter related to its equity portfolio. Bank Muscats profit tumbled 83 percent in the fourth quarter as the bank booked impairment losses related to an investment in Pakistans Saudi Pak Commercial Bank. "During the course of the year the bank will have to repeat the impairment test exercise it carried out last year for testing any potential impairment in value on its Saudi Pak Bank investment," it added.
In February 2008, Bank Muscat said it had no plans to sell any stake in HDFC after the Indian bank agreed to buy Centurion Bank of Punjab. Bank Muscat owned about 14.02 percent of Centurion Bank, according to Indian stock exchange data at the time, which it converted into between 2.5 percent and 3 percent of HDFC after the agreed take-over.
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