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PNB Housing Finance likely to challenge Sebi freeze on Carlyle deal at tribunal –

The market regulator said that the notice given on May 31 for Extraordinary General Meeting is “ultra-vires of Article of Association (AOA) and shall not be acted upon until the company undertakes the valuation of shares.”

Public sector lender Punjab National Bank Housing Finance is exploring legal options and may knock the doors of the Securities Appellate Tribunal against regulator Sebi’s directive to halt the its Rs 4,000-crore transaction with a consortium led by private equity giant Carlyle, people familiar with the matter told Moneycontrol.

The consortium includes former HDFC Bank MD and CEO Aditya Puri and private equity funds General Atlantic and Ares SSG. The rare regulatory intervention from Sebi has come days before a crucial Extraordinary General Meeting (EGM) scheduled on June 22 to approve the issue of shares to the Carlyle-led group. Sebi wants PNB Housing Finance to undertake the valuation exercise based on the firm’s articles of association.

The high-profile deal has been shrouded in controversy. Moneycontrol was the first to report that Sebi is examining the deal after a proxy advisory firm, SES (Stakeholders Empowerment Services) led by former Sebi ED JN Gupta, questioned the proposed investment by the US private equity major over valuations and interest of minority shareholders.

Read: PNB Housing Finance deal with Carlyle is under Sebi scanner

“Discussions are ongoing and PNB Housing Finance is likely to move the Securities Appellate Tribunal shortly, file an appeal and oppose the directions in the Sebi letter. The plan is to push for immediate relief,” said one of the individuals cited above. It wasn’t immediately clear whether Carlyle would join PNB Housing Finance in the proposed legal proceedings.

Regarding the grievance of PNB Housing Finance, a second person said: “One of the contentions is how can Sebi raise questions when its own pricing guidelines have been followed. And as long as pricing guidelines have been complied with, why has the regulator questioned the price determined by the company’s board? This may have wide ranging ramifications in future.”

A third person also confirmed the plans of the lender to challenge the Sebi directions at a legal forum, namely SAT.

All the three persons above spoke to Moneycontrol on the condition of anonymity.

PNB Housing Finance declined to comment in response to an email query from Moneycontrol and directed us to the details shared earlier by the company as part of stock exchange notifications. Carlyle was unavailable for an immediate comment.


Earlier over the weekend, PNB Housing Finance disclosed the contents of a letter received from Sebi . The market regulator said that the notice given on May 31 for Extraordinary General Meeting is “ultra-vires of Article of Association (AOA) and shall not be acted upon until the company undertakes the valuation of shares as prescribed under 19(2) of AOA, for purpose of preferential allotment, from an independent registered valuer as per the provisions of applicable laws. The said report shall be considered by the Company’s Board while deciding on the preferential issue of shares and warrants.”

But the public sector lender was unmoved from its original stance. It said, “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 Articles of Association of the Company, and that such Preferential Allotment is in the best interests of the Company, its shareholders and all relevant stakeholders. The Company is evaluating further steps in this regard.”


The proposed deal has been struck under the route of preferential allotment of shares, with Rs 3,200 crore is to be raised through equity shares and Rs 800 crore by issuance of warrants. As per the proposal, the deal will change the control of PNB Housing Finance—from PNB being the sole promoter of the company to a joint control holder with Carlyle Group.

“The Ministry of Finance is also looking into this deal,” a person close to the development had told Moneycontrol earlier on condition of anonymity.

This person cited criticism of the deal by the proxy advisory firm Stakeholders Empowerment Services (SES) that the investment was weighed against the interests of the shareholders of both PNB Housing Finance and Punjab National Bank because the deal had been struck at a valuation less than even the book value of the company. SES had said instead of following the route of preferential allotment of shares, the company should have opted to raise the capital through a rights issue, treating all shareholders equitably. On the other hand, some legal experts have argued that a preferential issue of shares is a speedier route and offers greater certainty.


PNB Housing Finance has emphasised that pricing is not required to be based on a valuation report from a registered valuer and that the final price is higher than the floor price suggested by registered valuers. It also stressed that the price was arrived at after due consideration and weighing of various relevant factors, and hence the pricing for the said preferential issue has been determined in compliance with the applicable law.

According to the company, Sebi’s ICDR (Issue of capital and disclosure requirements) norms provide for the minimum price of equity shares. “The company calculated the floor price as prescribed by SEBI and the issue price of Rs 390 per share is above the floor price of Rs 384.6 per share. The company as a prudent measure has also taken a valuation report from an independent CA firm basis the relevant regulations and guidelines. Hence, the company has followed all the regulatory compliances to determine the issue price,” it said in response to SES.

PNB Housing Finance has not raised any equity capital in the past three years, except equity shares issued under the employee stock option plan. Earlier in February this year, the Reserve Bank had rejected PNB’s proposal for a capital infusion into its subsidiary PNB Housing.