NEW DELHI: Punjab National Bank (PNB), which is the controlling shareholder of PNB Housing Finance Co. Ltd, is likely to come with ‘Plan B’ to raise capital after several corporate governance concerns -- ranging from allegations of conflict of interest to being ‘unfair’ to public shareholders -- have clouded the proposed Rs.4,000 crore deal with the Carlyle Group-led investors. Sources say that the state-run lender may also have voted against this proposed fundraising plan in the extraordinary general meeting held June 22.
“All mandated procedures have been followed to ensure the deal goes through. Still, the promoter is likely to have voted against the deal with Carlyle Group with valuations being questioned. It may plot a new plan to raise funds,” said a person in the know on condition of anonymity. It is, however, not clear if PNB will now opt to retain its control over the home financing subsidiary or surrender it to Carlyle Group-led investors after extracting a fair compensation — control premium. A key message from some proxy advisory firms, meanwhile, is that a rights issue — instead of a preferential allotment to Carlyle group and other new investors who together will control PNB Housing — will be the best option, pleasing all parties.
The key shareholders of PNB Housing are — PNB (33%), Carlyle (32%), General Atlantic (10%), Ares SSG (10%). According to the terms of the deal, PNB Housing will sell shares worth Rs 3,200 crore and Rs 800 crore worth of warrants to the Carlyle Group, Aditya Puri’s family investment vehicle Salisbury Investments, General Atlantic and Alpha Investments at Rs 390 apiece, which is at a much lower price than its current market value.
Post the capital infusion, Carlyle Group will eventually become a promoter and PNB’s shareholding will get diluted to little over 20 per cent and thereby become a smaller partner.
Describing this deal as an “unfair transaction” against the interests of public shareholders, J N Gupta, co-founder and managing director of Stakeholders Empowerment Services (SES) said that it sees PNB having lost at least Rs. 2,000 crore in not insisting on a rights issue and questioned why PNB has ‘gifted away’ control without demanding a fair compensation. SES has maintained that the proposed preferential issue is ultra vires of the firm's Articles of Association (AoA) as the company has decided on the issue price without obtaining a legally tenable valuation report. According to SES, the report from BR Maheswari and Co LLP — provided by PNB Housing — is not legally tenable. However, PNB Housing clarified to the stock exchanges that the pricing for the said preferential issue has been arrived at only after due consideration and weighing of various relevant factors, and hence it is in compliance with the applicable law.
According to Shriram Subramanian, MD of shareholder advisory firm InGovern Research Services, however, there are various ways to view it.
“PNB Housing has been trying to raise funds for two years now and against this backdrop, it may have had little choice to go with a rights issue—which typically takes a longer time. The fresh equity capital will provide the much-needed balance sheet strength, eventually unlocking shareholder value,” he noted.
Based on SES’ observations, markets regulator Sebi has halted the deal and directed the mortgage lender to undertake valuation of shares from a registered valuer and place it once again before the PNB Housing Board to decide on the transaction. However, PNB Housing has defended the deal and moved the Securities Appellate Tribunal (SAT) challenging Sebi’s directive. SAT allowed the voting to continue, with the condition that the outcome of the vote will not be disclosed. The matter will now be heard before the SAT on July 5.