Citi Sheds Stake in Aeromexico - Analyst Blog

In order to enhance profitability, Citigroup, Inc. (C) has shed roughly half of its stake in Grupo Aeromexico, according to Reuters. Airways of Mexico, SA de CV – a company that operates as Aeromexico – is the flagship airline of Mexico and is based in Colonia Cuauhtemoc, Cuauhtemoc, Mexico City. Citigroup unit Banamex held a stake in Aeromexico.

Banamex has been consistently shedding its stake through a number of transactions. In the aforementioned transaction, Banamex sold its 18.53% stake for 16.50 pesos per share, which resulted in an aggregate amount of $2.193 billion pesos ($172 million). Till date, Benamex has divested 20.33% stake in Aeromexico. Citi’s current stake in the airline stands at 16.11% 

 

A group of Mexican businessmen, led by the president of Mexico's Grupo Lala, Eduardo Tricio Haro, bought a 20.19% stake in Aeromexico, thus boosting their existing stake. Through personal holdings and agreements with other shareholders Tricio presently controls 20% of voting stock in the company.

 

Citi’s interest in AeroMexico is a part of Citi Holdings division, which was set up for its unwanted and underperforming assets and businesses. However, the unit’s waning revenues have emerged as a headwind for Citi’s finances. Citi Holdings reported negative revenues of $833 million for the full-year 2012 compared with positive revenues of $6.3 billion in 2011.

 

Earlier, in 2007, Citi was among a group of investors that contributed a total sum of $250.0 million for the privatization of Aeromexico. Despite this, the U.S. banking giant was the principal shareholder with a 37% stake. Among others, Atlanta-based Delta Air Lines Inc. (DAL) also held a roughly 5% stake in AeroMexico.

 

Since 2007, the banking major has maintained that its investment in the Mexican airline is a provisional one and rumors of Citi offloading its stake in AeroMexico have been doing rounds ever since.

 

Citi came up with the decision to divest its non-core and unprofitable operations to focus more on its core business lines. This comes on the back of a sluggish macroeconomic environment and stringent regulatory landscape.

 

Several other financial institutions have started shedding non-profitable businesses due to the slow economic growth. In August this year, Bank of America Corporation (BAC) divested its international wealth management operations to Switzerland-based private bank Julius Baer Group Ltd. (JBARF) for roughly $882 million.

 

Citi currently retains a Zacks Rank #3 (Hold).

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