The PNB Housing-Carlyle saga could take an altogether different turn
PremiumLargest investor in PNB Housing said to have vetoed Carlyle-led deal
MUMBAI : Punjab National Bank, the controlling shareholder of PNB Housing Finance Co. Ltd, is likely to have vetoed the mortgage lender’s planned ₹4,000 crore fundraising from investors led by Carlyle Group at Tuesday’s voting, and will instead propose an alternative plan to raise capital, two people aware of the matter said.
The state-run bank is expected to propose a plan that will ensure it retains control of the home financier after the capital infusion, the people said on condition of anonymity.
“Punjab National Bank (PNB) is expected to have voted against the transaction in PNB Housing’s extraordinary general meeting (EGM) held on Tuesday," said one of the two people cited above. “The bank will veto the proposed transaction since the Securities and Exchange Board of India (Sebi), as well as minority shareholders, have raised concerns on the valuation of the deal," the person said.
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Shareholders of PNB Housing on Tuesday voted on a special resolution for a preferential allotment of shares to Carlyle and other investors. The fundraiser needs approval from 75% of those present and voting. The parties to the deal are PNB and private equity firms Carlyle, General Atlantic and Ares SSG, which own a combined 85% stake in PNB Housing.
With over 32% as a promoter group and a majority shareholder, PNB can block the special resolution by voting against the preferential allotment of shares to the investors led by the Carlyle Group. “As a public sector unit, the bank finds itself in a difficult situation," said the first person.
A Carlyle group spokesperson declined to comment. Emails sent to PNB and PNB Housing did not elicit any response.
On 12 June, Mint first reported that Sebi was scrutinizing the ₹4,000 crore share sale by PNB Housing after proxy adviser Stakeholders Empowerment Services (SES) termed the deal “unfair and abusive" to the mortgage lender’s minority shareholders. SES also highlighted that PNB agreed to cede control of its unit to the Carlyle Group without seeking a higher share price.
According to the terms of the deal, PNB Housing will sell shares to the Carlyle-led group of investors at a much lower price than its current market value. As part of the deal, Carlyle will invest up to ₹3,185 crore through a preferential allotment of shares and warrants at ₹390 apiece.
On Tuesday, PNB Housing’s stock rose by the maximum daily limit of 5% to ₹737.45 on BSE. To be sure, the shares of the company have surged 68.5% since the deal was announced.
Seeing merit in SES’s argument, Sebi on Friday halted PNB Housing’s fundraising proposal, terming the EGM notice “ultra vires" of the company’s Articles of Association (AoA) and directing the mortgage lender not to act on the proposed deal as per AoA until the company undertakes the valuation of shares as prescribed in its AoA by an independent registered valuer.
PNB Housing challenged Sebi’s order before the Securities Appellate Tribunal (SAT) and on Monday, SAT allowed PNB Housing to go ahead with its EGM but asked it to keep the results of the voting in a sealed cover until further orders. The matter will come up for a final hearing before SAT on 5 July.
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SES suggested that instead of a preferential allotment to Carlyle and others, PNB Housing should have opted to raise the capital via a rights issue, treating all shareholders equitably.
On 31 May, PNB Housing said Carlyle Group and some existing shareholders of the mortgage lender, including funds managed by Ares SSG and General Atlantic, will invest in the lender through a preferential stock allotment. Salisbury Investments Pvt. Ltd, the family investment vehicle of Aditya Puri—senior adviser for Carlyle in Asia and the former managing director of HDFC Bank Ltd—will also invest ₹25 crore.
According to the deal terms, post the allotment of equity and warrants, Pluto Investments, an affiliate of Carlyle group, would have held 30.2% in PNB Housing. Carlyle, through a separate investment vehicle, Quality Investment Holdings, owns 32.2% in PNB Housing. Cumulatively, Carlyle would have held about 50% after the capital raise.
General Atlantic Singapore also agreed to invest ₹390 crore as part of the preferential deal and would have held 9.8% in the mortgage lender post equity and warrant allotment. It is an existing investor and owns 9.9%. Alpha Investment, a fund managed by SSG Group, would have owned 3.8% post the deal.
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