Mumbai, May 25: The Housing Development Finance Corporation will raise Rs 3,114 crore by allotting preference shares to two foreign investors to fund its expansion plans.

According to the decision approved by its board, the HDFC will issue preferential shares of Rs 10 each at a price of Rs 1,730 per share to Citigroup and the Carlyle group.

This represents 7.11 per cent of the total issued and paid-up capital of the corporation.

The Carlyle group will subscribe to 1.525 crore shares, while Citigroup Strategic Holdings Mauritius will pick up 27.5 lakh shares.

After the issue, Citigroup will maintain its holding at 12.3 per cent and the Carlyle group will hold a 5.6 per cent stake in the corporation.

The money raised through the issue will be utilised to fund the growth of mortgage business, the HDFC said. Additional capital will be needed for the expansion of its associate and subsidiary companies, namely HDFC Bank and HDFC Standard Life Insurance Company.

The insurance business will need over Rs 600 crore every year.

Part of the money raised will be used to maintain the corporation’s stake in HDFC Bank, executive director Renu Karnad said.

At present, the HDFC holds 21.56 per cent of HDFC Bank.

It was in May last year that Standard Life, the European financial services company sold its entire 9.27 per cent stake in the HDFC to Citigroup for a consideration of Rs 3,000 crore.

The purchase made Citigroup the largest foreign investor in the corporation. Through its investment in the corporation, Citigroup also obtained an indirect stake in HDFC Bank. Sources said the financial services major had expressed the view that its stake in the HDFC should not get reduced in the event of an equity dilution.

Had the HDFC increased its capital without issuing shares to Citigroup, the latter’s shareholding would have come down in both the parent body and HDFC Bank.

The HDFC is talking to two to three prospective partners for non-life joint venture, she added.

The company’s board also approved the proposal to increase the authorised share capital from Rs 275 crore to Rs 325 crore.

The prices at which the shares are offered represent a 6.9 per cent premium over the average weekly closing share price of the corporation during the past six months, the HDFC said.

After the issue, Citigroup will maintain its holding at 12.3 per cent and Carlyle will hold a 5.6 per cent stake in corporation, it added.

HDFC’s loan approvals have grown consistently at 30 per cent on a 10-year compounded annual growth rate basis.