Minority shareholders pulling the brake on a mega investment deal is relatively rare in India.
In one such occurrence, the Securities and Exchange Board of India (SEBI) has put on pause American private equity (PE) giant Carlyle Group’s proposal to buy a majority stake in PNB Housing Finance (PNBHF) for ₹4,000 crore.
Spurring SEBI’s decision was a proxy advisory firm red-flagging the deal at the behest of minority shareholders. Proxy advisory entities are those that offer research, data and recommendation services to institutional investors ahead of voting at shareholder meetings.
Change in ownership
Late last week, SEBI issued a letter to PNBHF, raising concerns over the valuation of shares in the proposed transaction. If the deal had gone through, Punjab National Bank (PNB) would have seen its stake in its housing finance subsidiary decline to 20.3%, while Carlyle would have landed a majority stake in PNBHF.
On May 31, PNBHF had issued a notice for an Extraordinary General Meeting (EGM), slated for June 22, to clear a preferential allotment of equity shares to investors led by Carlyle, which included Aditya Puri, former MD of HDFC Bank and a senior advisor to the PE firm. The markets cheered the announcement, with PNBHF shares doubling over the next week.
However, SEBI termed the EGM notice ‘ultra vires’ (beyond one’s legal authority) of PNBHF’s Articles of Association (AoA). The company’s shares have to be valued by an independent registered valuer, as prescribed in the AoA, insisted the regulator. That valuation should be considered by the company’s board for the stake sale to the American investor-led consortium, it added.
SEBI also directed PNBHF to make public the contents of its letter, which the housing finance firm complied with in a disclosure to the Bombay Stock Exchange (BSE) on Friday evening.
Stakeholders’ Empowerment Services, a proxy advisory firm, acting on behalf of minority shareholders, had reportedly raised concerns over the valuation — ₹390 per share — fixed for the transaction by the PNBHF board. It said the pricing ignored its AoA, which requires the valuation to be arrived at by a registered valuer.
However, PNBHF said its board of directors believes it is already complying with all relevant norms. “The company is evaluating further steps in this regard,” it said in the BSE disclosure, suggesting that it may challenge the regulatory decision.