By Emma-Victoria Farr and Christian Kraemer
FRANKFURT (Reuters) -Germany's state-owned KfW bank placed some 50 million shares of its stake in DHL for 2.17 billion euros ($2.33 billion) on Tuesday as part of a government plan to sell its holdings in companies to invest in the rail network.
KfW's holding fell to about 16.5% from about 20.5% after the share placement which was directed at institutional investors, the finance ministry said.
The placement means DHL's free float has grown, but KfW remains its largest shareholder.
As part of a budget deal in December, Finance Minister Christian Lindner said Germany would invest in rail operator Deutsche Bahn partly with funds raised from the privatisation of stakes in some of the 100 or more companies it owns.
"With this transaction, the government is continuing its responsible policy of privatising companies in which there is no significant interest," said the ministry.
"The government will use the proceeds from the transaction to strengthen the equity of (rail operator) Deutsche Bahn and to expand the railway infrastructure in Germany," it added.
This year, the government plans to raise up to 4 billion euros by selling company holdings, finance ministry documents seen by Reuters show.
Among the government's other holdings are a 13.8% direct stake in Deutsche Telekom (OTC:DTEGY) and a further 16.6% via the KfW.
A spokesperson for DHL said the company, which operates Deutsche Post (OTC:DHLGY) in Germany, had said it was neutral about any further reduction in the government's holding.
Bank of America, Deutsche Bank and JP Morgan won the auction to run the sale, which took place via an accelerated bookbuild, according to a bookrunner term sheet.
The shares, which represent 4.04% of DHL, had an offer price of 43.45 euros, the document stated. At Tuesday's closing price of 44.4 euros, this represented up to 2.2% discount and a deal worth around 2.22 billion euros.
DHL group shares were 4% down at 0930 GMT.
The transaction follows a string of large stock sales at European companies in the last year, including at the London Stock Exchange Group (LON:LSEG) and Heineken (AS:HEIN), as shareholders saw a chance to raise cash in a otherwise gloomy period for capital market transactions.
Some of these blocks of shares have come from governments, with Italy selling shares in Banca Monte dei Paschi and Greece in a number of local lenders.
($1 = 0.9294 euros)