Carlyle-led capital infusion plan for PNB Housing faces red flags

NEW DELHI:  Questions are likely to be raised at the shareholders’ meeting of PNB Housing Finance later this month over its preferential allotment to Carlyle, which would give the private equity firm control over PNB Housing Finance. 

According to a section of proxy advisory firms, the Rs 4,000 crore investment in PNB Housing Finance, led by Carlyle Group, is against the interests of minority shareholders of the mortgage lender.

“On the face of it, SES finds this deal unfair to public shareholders of the company and shareholders of PNB. As controlling shareholder of the company, PNB has blown away the value,” said governance watchdog Stakeholders Empowerment Services (SES), recommending that public shareholders of PNB Housing cast votes ‘against’ the resolution on preferential allotment. 

PNB held a 33 per cent stake in PNB Housing and Carlyle, through two different entities, before the transaction.

Post the investment, PNB’s holding will drop to 20 per cent, while Carlyle will own 50.2 per cent stake.

SES has questioned PNB’s decision to allow its stake to slip below 26 per cent even though it had categorically mentioned in the past that it will not dilute its stake to below 26 per cent.

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 and support growth, eventually unlocking shareholder value.” Meanwhile, Aditya Puri’s investment has added some optimism.

The stock, which was trading at Rs 525.65 on May 31, has risen 62 per cent to Rs 852.20 on June 8, within days of the deal announcement.

Following the infusion, a mandatory open offer will be launched for 7.08 crore equity shares at a price of Rs 403.22 apiece.

“(This) is a mere formality given the market price. It is highly unlikely that any shareholder would tender their shares,” SES said.

Fair deal to stakeholders

Instead of going for a preferential issue that majorly changes the company’s ownership, SES believes that a rights issue would have been fairer to all stakeholders.