CITI PUTS BPO UNIT SALE ON HOLD

George Smith Alexander & N Shivapriya, Mumbai
The Economic Times

Citigroup has put the sale of its BPO operations — Citigroup Global Services (CGSL) — on hold. The move comes at a time when Citi is looking at taking a hard look at its expenses, which could lead to job cuts across the world. The group had initially started the sale process in the second quarter last year. It was in the process of choosing a partner in Genpact late last year.

Citi has outsourcing operations in China, the Philippines, Latin America and Europe, of which CGSL was one of them. Sources said the group is now looking at taking a strategic decision on all these operations globally. “Citi wanted to have a relook at all the operations and has put the sale of the Indian operations on hold,” said a source.

There has also been a change in the senior management with Vikram Pandit taking over as the CEO from Chuck Prince. Sources said with the rupee appreciating by around 12% in this financial year, most outsourcing firms have felt the pinch on their margins. Many of these have also been witnessing a higher attrition in recent times, they said.

Citigroup and Genpact were close to coming to an agreement. But differences over the term of contracts and the price could not be resolved. The market crash has ensured a major fall in valuations of most major BPO firms. At $700 million, the deal suddenly looked expensive for Genpact. When contacted, Citigroup officials said: “We decline to comment on speculations.”

Said one investment banker involved in an earlier round of bidding for the captive unit: “The (Genpact) management will not be able to justify paying a valuation higher than its own to shareholders. Valuations of all BPOs have fallen because of the uncertainty in the environment.” The Citi BPO is expected to “go off the radar” for at least another 4-6 months. An e-mail sent to Genpact did not receive any response, as did a call to its president and CEO Pramod Bhasin.

“The BPO does end-to-end work, but the crisis in the mortgage business will have a cascading effect on all services, including loan processing and credit card collections. There was a minimum guaranteed business by Citi for a period of 5 years under the deal,” the executive said. The Citi captive was valued at over $ 600 million in the final bid, according to the figures quoted at that time.

Even under Chuck Prince, there were some difference of opinion on whether CGSL needs to be put on the block as for some, it’s an integral part of the firm. Citi had, in 2004, delisted Citigroup Global Services — earlier known as e-Serve. The shares at that time were held by Citibank Overseas Investment Corporation. At the time of delisting, the company was valued at around Rs 1,200 crore. Citi was looking at a valuation of around $600 million while selling off a majority of the stake in the outsourcing firm.

CGSL handles multiple operations for Citigroup entities globally, including retail banking operations like credit cards, mortgages, personal loans and the like. It has operations in Mumbai, Chennai and Gurgaon, too. It has some 11,000-12,000 employees, of which half service the international operations of the group. It caters to operations in more than 40 countries. Citigroup is present in over 100 countries internationally.

It has a separate knowledge processing outsourcing firm that processes activities for corporate and investment banking clients. It also has a technology outsourcing — Citi Technology Services. Citigroup had recently said it was writing down $22.2 billion. It posted a $9.83 billion loss for the fourth quarter as against a profit of $5.1 billion in the previous year. For the full year, Citigroup net income dropped to $3.62 billion as against a profit of $21.53 billion in 2006.