The Securities and Exchange Board of India has asked PNB Housing Finance not to go ahead with the ₹4,000-crore stake sale to a clutch of investors, led by private equity firm Carlyle Group, until the housing finance company undertakes valuation of its shares.
The market regulator said the notice given by PNBHF on May 31 for an Extraordinary General Meeting to approve the stake sale is “ultra-vires of Article of Association (AoA) and shall not be acted upon until the company undertakes the valuation of shares.”
This comes after Stakeholders Empowerment Services, a governance watchdog, expressed concern over the deal wherein PNBHF would preferentially allot ₹3,200 crore worth of shares and ₹800 crore worth of warrants to a bunch of investors, including Carlyle, former HDFC Bank chief executive officer Aditya Puri’s family investment vehicle, General Atlantic, and Alpha Investments at ₹390 a piece.
SES, in a report issued in the first week of June, termed the deal as being “unfair” to public shareholders because “the company wants investors to believe that even with book value per share of about ₹530, the proposed issue price is fair”.
PNBHF had announced the deal on May 31, under which the Carlyle Group’s stake would go up to 50 per cent in the company. Carlyle will also have the right to nominate the chairperson of PNBHF. Public sector lender Punjab National Bank (PNB) will continue to be a promoter but its stake will fall from 32.6 per cent to 20.3 per cent in the expanded capital base.
Rights offer, best route
SES had questioned PNB as to why it willingly surrendered its control over PNB Housing to the Carlyle Group without extracting fair compensation — control premium.
Not only this, it also sees PNB as having lost at least ₹2,000 crore in not insisting on a rights issue. PNBHF, on the other hand, said it calculated the floor price as prescribed by SEBI and the issue price of ₹390 per share is above the floor price of ₹384.6. On Friday, the company’s shares had closed at ₹739 apiece on the BSE.
Following SEBI’s action, JN Gupta, Managing Director, Stakeholders Empowerment Services, told BusinessLine on Sunday that the best way for PNB to divest PNB Housing stake is to come out with a rights issue and renounce its rights in favour of Carlyle at a market discovered price so that retail investors also benefit from the entire deal.
Asked whether such a delay in the deal would hamper the health of PNB Housing which is in dire need of capital, Gupta said if the company had followed the right process, it would not have ended up at this stage.
If this case lands up in courts, the judges should not see it as a tussle between SEBI and PNB Housing because the former is not fighting for its chairman or whole-time directors but representing scores of hapless small investors whose voices are hardly heard, said Gupta.
On its part, PNBHF insisted that it has followed due process.
“The company and its Board of Directors have considered the SEBI letter, and continue to believe that the company has acted in compliance with all relevant applicable laws, including the applicable pricing regulations prescribed by SEBI, and the AoA of the company, and that such preferential allotment is in the best interests of the company, its shareholders and all relevant stakeholders,” the housing finance company said in a statement to the stock exchanges.