NEW DELHI: In an unprecedented turn of events, the Securities Appellate Tribunal (SAT) on Monday pronounced a split verdict in the case of PNB Housing Finance delaying its Rs. 4,000 crore fund infusion plan.
The tribunal on Monday failed to reach a consensus after a two-judge bench comprising Presiding Officer Justice Tarun Agarwala and Judicial Member Justice MT Joshi placed contradictory observations on the fundraising plan of PNB Housing, from a clutch of investors led by Carlyle Group, which was opposed by Sebi. Given the lack of concord, SAT's interim order --- prohibiting PNB Housing Finance from disclosing the results of shareholder’s vote on the proposed deal in its last extraordinary general meeting held on June 22 --- will continue to hold.
The proposed stake sale through which private equity fund Carlyle Group is trying to take control of the housing financier has faced resistance from the market regulator after proxy advisory firm Stakeholders Empowerment Services (SES) termed the deal “unfair and abusive" to the mortgage lender’s minority shareholders.
Sebi, in a letter to PNB Housing, stated that the transaction should be halted until the company undertakes the valuation of shares by an independent valuer. Sebi ought to stop the voting at the EGM, saying it was necessary for shareholders to get the correct valuation at which investors led by the Carlyle Group would acquire shares and management control. On 18 June, however, PNB Housing challenged the Sebi order.
The markets regulator defended its decision saying that a valuation report is mandatory before a company raises capital via preferred allotment of shares to ensure all shareholders are treated equally, especially if such a preferential allotment entails an open offer due to change in ownership. If the deal goes through, Carlyle will become the majority shareholder replacing Punjab National Bank (PNB) as the principal promoter of the mortgage lender. Carlyle Group controlled Pluto Investments S.a.r.l and Salisbury Investments (Aditya Puri’s family investment vehicle) is looking at acquiring up to 56.29% stake in the mortgage lender. Currently, PNB holds a 32.59% stake in PNB Housing, which would get reduced to around 20% post the proposed deal.
While Justice Agarwala ruled in favour of the housing finance company, Justice Joshi agreed with the market regulator's view. Agarwala held that SEBI ought not to have stopped the voting at EGM since PNB board had approved issuance of shares as per ICDR and shareholders should have been allowed to vote. “Now, only the Supreme Court will decide if PNB Housing can proceed with the outcome of the EGM,” said J N Gupta, former executive director at Sebi and co-founder of SES.
On July 7, PNB Housing informed exchanges that PNB had asked it to reconsider the structure of the investment proposal from the Carlyle-Aditya Puri combine in the current form and seek an alternative plan. Aditya Puri is a senior advisor at the Carlyle Group and former managing director of HDFC Bank.
But a month later, PNB MD&CEO Mallkarjuna Rao told reporters that PNB never objected to the Carlyle deal but only asked the subsidiary to adhere to the directions of Sebi.
Under the deal announced on May 31, the PNB board had arrived at a price of Rs. 390 per share for the purposes of the preferential allotment through a valuation process it had undertaken. Meanwhile, the Competition Commission of India has approved the contentious deal under the green channel facility as per which a proposed deal which does not cause substantial adverse effect on market competition under the competition law is deemed to be approved on it being intimated to the regulator.