PremiumFurther SEBI counsel argued that to ensure transparency and fairness, PNB Housing should have submitted an independent valuation report , as stipulated in it's Articles of Association
MUMBAI: Defending its decision to intervene in the matter of preferential allotment of shares to a select group to select group of investors led by Carlyle group, market regulator Securities and Exchanges Board of India ( sebi) on Friday said that board of PNB Housing Finance Limited ( PNBHFL) had prima facie failed to uphold the interests of minority shareholders of the company. In its concluding arguments before the Securities Appellate Tribunal ( SAT) sebi maintained it was necessary for shareholders to get the correct valuation at which investors led by the Carlyle Group would acquire shares and management control of the mortgage lender.
Further SEBIcounsel argued that to ensure transparency and fairness, PNB Housing should have submitted an independent valuation report , as stipulated in tt's Articles of Association (AoA), which in turn would have allowed shareholders to vote accordingly in the company’s recently held Extraordinary General Meeting ( EGM). The SAT will next hear the matter on Monday.
In its concluding remarks sebi reiterated that the board of PNB Housing has violated AoA by not getting an independent valuation report done for pricing the deal commensurate with the company’s present book value. SEBI maintained that the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, (ICDR Regulations) provided for a floor price below which shares cannot be issued, but that level could not be construed as a price ceiling. On 14 June, the appellate hearing matter questioned why sebi chose to intervene in the matter before the company’s shareholders could vote on the proposal in a scheduled EGM. Approving the proposal would have led to a change of ownership of the mortgage lender, with the private equity giant taking the driving seat. The matter reached the Securities Appellate Tribunal (SAT) after the Securities and Exchange Board of India (Sebi) stayed the process after PNB Housing approached the appellate tribunal.
In an apparent shift of stance on july 4, the Punjab National Bank ( PNB), the controlling shareholder in the company, advised the board to reconsider the deal and think of other routes for raising capital. PNB Housing, said on 7 July that since the issue involved relates to the interpretation of the law and is sub-judice before SAT, the company will await the tribunal’s order on this issue. PNB Housing needs approval from 75% of shareholders for the deal to go through. 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. Controlling over 32% as a promoter group, Punjab National Bank can block the special resolution by voting against the preferential allotment.
The voting has already happened on 22 June but the results of the voting has been kept in a sealed cover, awaiting SAT's final order. According to PNB Housing's AoA, further shares may be offered to any entity if authorised by a special resolution either for cash or for consideration other than cash — on condition that the price of such shares is determined by the valuation of a registered valuer. PNB Housing Finance however had told SAT earlier that the market regulator cannot compel it to follow the AoA.
The law does not require engaging the services of registered valuers when a listed company makes a preferential issue, PNB Housing has told the tribunal in an earlier hearing. In a 13 July hearing Sebi had told SAT that there should not be any conflict between a company’s AoA and Sebi’s ICDR (Issue of Capital and Disclosure Requirements) regulations and in reconciling the two the rule of harmonious construction should apply.
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