THERE’S growing concern in the Government after capital markets regulator Sebi called the Rs 4,000-crore share issuance by PNB Housing Finance (PNBHF) to a clutch of investors led by US private equity giant The Carlyle Group as “ultra vires” of the company’s Articles of Association (AoA), The Indian Express has learnt.
Officials are flagging concerns over the “fairness of process and valuation,” and the way the deal has been structured in which shares have been sold at a discount to the book value.
While PNBHF is not a stressed entity and its NPAs are “manageable” given the existing levels of capitalisation, “a control transaction (majority stake acquisition) is happening without payment of control premium (premium for relinquishing control),” said a senior Government official. “This is bound to raise questions over fairness of process and the valuation methodology, especially when the acquisition price is nearly 30 per cent below the book value.”
If the shareholders approve the preference share allotment Tuesday and legal issues don’t come in the way, the Carlyle Group will become a majority shareholder in the company (with over 50 per cent stake in the company) and will bring down the stake of Punjab National Bank in its housing finance subsidiary to around 20.3 per cent. This means it will not only lose its dominant shareholder status but also its veto power on the board of the company.
While the preference share allotment to investors including Carlyle was fixed at Rs 390, the book value of PNB Housing share is Rs 540.
The official pointed out that PNBHF is on the path to recovery with some of its corporate loan resolutions being supported by the SWAMIH Fund (Special Window for Affordable & Mid-Income Housing) set up by the government.
PNBHF maintained that the company acted in compliance of all the applicable laws and moved the Securities Appellate Tribunal on Monday seeking relief. Giving its nod to PNBHF to hold its extraordinary general meeting (EGM) Tuesday for shareholder approval of the Rs 4,000-crore allotment, SAT directed the company not to declare the results of voting until further orders. It also asked the company to inform the National Securities Depository Ltd (NSDL) to withhold the result.
On Friday, Sebi had issued a letter to PNBHF that its May 31 notice for the EGM to approve the allotment was “ultra-vires” of the company’s AoA and should not be acted upon until the company undertakes the valuation of shares — as prescribed in its AoA – by an independent registered valuer.
Experts said SAT’s interim order is in line with Sebi’s direction. While Sebi had not called for cancellation of the EGM, it had said that the company should not act upon the resolution relating to the issue of securities. Even SAT has stated that while the company can go ahead with its EGM, it shall not declare the results of the voting.
On June 14, The Indian Express had reported that of the 12 PNBHF board members who cleared the allotment, at least seven had dealings with the US PE giant — including two Carlyle employees who are nominee directors.
