NEW DELHI: In a fresh twist, state-run Punjab National Bank (PNB) has directed the board of its housing financing arm - PNB Housing Finance Co. Ltd - to consider restructuring of the controversial Rs. 4,000 deal with the Carlyle Group-led investors, complying with Sebi norms. According to an exchange filing on Wednesday, PNB Housing said it has received a letter regarding the matter from its parent on July 4.
The housing finance company's board then met on July 5 and 6 to discuss the views shared by PNB, but decided against taking any action at the moment, since the matter is currently subjudice. Notably, the Securities Appellate Tribunal (SAT) is scheduled to pronounce the final verdict on the matter on July 12.
“The PNB letter had conveyed a decision taken by its board of directors at their meeting held on July 3, 2021 (on the basis of a legal opinion obtained from a law firm and deliberated at such board meeting) that, in their view, the board of directors of the company should take cognizance of the directive issued by Sebi vide their letter dated 18 June 2021 and reconsider restructuring the contours of the deal/transaction of the capital-raising in line with such Sebi directive… the board will await the SAT’s order on this issue," PNB Housing Finance informed the bourses.
The New Indian Express had on July 4 reported that PNB, which is the controlling shareholder of PNB Housing, was 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 deal with Carlyle Group and others.
Last month, PNB Housing announced its fundraising plans. According to the terms of the proposed plan, it will sell shares worth Rs. 3,200 crore and Rs. 800 crore worth of warrants to the Carlyle Group, former HDFC Bank chief executive 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 with over 50% shareholding and PNB’s shareholding will get diluted to around 20% from 32.6% currently, 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) questioned why PNB has ‘gifted away’ control without demanding a fair compensation.
Based on SES' observations, markets regulator Securities and Exchange Board of India (Sebi) found that the valuation of shares undertaken by the company as part of the deal was "ultra vires" of Articles of Association. It also halted the deal and asked the mortgage lender to revaluate the issue price for the Rs. 4,000 crore preference shares and warrants to be issued to the proposed investors and place it before the PNB Board once again to decide on the transaction.
However, PNB Housing has defended the deal and moved SAT challenging Sebi’s directive. The key shareholders of PNB Housing are — PNB (33%), Carlyle (32%), General Atlantic (10%), Ares SSG (10%). Any change in stance expressed by the PNB Board, which also includes its managing director and chief executive Mallikarjuna Rao, can either delay or put the fundraising plan altogether to rest.