As PNB Housing holds its EGM, concern in Govt over its Carlyle deal

The Securities Appellate Tribunal on June 21 okayed PNBHF EGM, allowing the mortgage financier to conduct voting process for its ₹4,000-cr deal with investors led by private equity firm Carlyle

Officials have expressed concerns over the way the deal has been structured in which shares have been sold at a discount to the book value.

PNB Housing Finance has filed an appeal in the Securities Appellate Tribunal (SAT) after the markets regulator sought a review of parts of the deal struck with investors led by private equity firm Carlyle. The “company has filed an appeal before SAT against the letter issued by SEBI on June 18, 2021,” PNB Housing said in an exchange notification on Monday (June 21).

On June 19, the company had informed exchanges that SEBI has sought a review of the proposed preferential issue by PNB Housing Finance Ltd to a group of investors led by private equity firm Carlyle questioning the valuation of shares.

The Indian Express reported on June 22 that SEBI called the ₹ 4,000-crore share issuance by PNB Housing Finance (PNBHF) to investors led by US private equity giant The Carlyle Group as “ultra vires” of the company’s Articles of Association (AoA).

Also read: PNB arm’s ₹4,000-Cr deal put on hold as minority investors raise red flag

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The Securities Appellate Tribunal (SAT) on Monday (June 21) approved PNB Housing Finance’s extraordinary general meeting (EGM) due Tuesday, which will allow the mortgage financier to conduct the voting process for its ₹4,000 crore deal with investors led by private equity firm Carlyle.

Officials have pointed out concerns over the “fairness of process and valuation” and the way the deal has been structured in which shares have been sold at a discount to the book value.

While PNBHF is not a stressed entity and its NPAs are “manageable” given the existing levels of capitalisation, “a control transaction (majority stake acquisition) is happening without payment of control premium (premium for relinquishing control),” said The Express quoting a senior government official. “This is bound to raise questions over fairness of process and the valuation methodology, especially when the acquisition price is nearly 30 per cent below the book value.”

Also read: As India emerges from COVID pain, banks stare at hefty rise in bad loans

If the shareholders approve the preference share allotment and legal issues don’t come in the way, the Carlyle Group will become a majority shareholder in the company (with over 50 per cent stake in the company) and will bring down the stake of Punjab National Bank in its housing finance subsidiary to around 20.3 per cent. This means it will not only lose its dominant shareholder status but also its veto power on the board of the company.

While the preference share allotment to investors including Carlyle was fixed at Rs 390, the book value of PNB Housing share is Rs 540.

The official pointed out that PNBHF is on the path to recovery with some of its corporate loan resolutions being supported by the SWAMIH Fund (Special Window for Affordable & Mid-Income Housing) set up by the government.

PNBHF says it acted in compliance with all the applicable laws. It said it moved SAT seeking relief. While clearing PNBHF’s EGM for shareholder approval of the ₹ 4,000-crore allotment, SAT directed the company not to declare the results of voting until further orders. It also asked the company to inform the National Securities Depository Ltd (NSDL) to withhold the result.

On Friday, SEBI had issued a letter to PNBHF that its May 31 notice for the EGM to approve the allotment was “ultra-vires” of the company’s AoA and should not be acted upon until the company undertakes the valuation of shares — as prescribed in its AoA – by an independent registered valuer.

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