In a letter issued to PNB Housing Finance (PNBHF) late Friday evening, the capital markets regulator, Securities and Exchange Board of India (Sebi), has effectively put on pause its Rs 4,000-crore share allotment to a clutch of companies led by The Carlyle Group.
This would have made the US-based private equity giant a majority shareholder in the company and brought down the stake of Punjab National Bank in its housing finance subsidiary to under 26%.
On May 31, PNBHF issued a notice for an Extraordinary General Meeting (EGM) of shareholders to be held on June 22 to approve the issuance of its shares to investors led by Carlyle including Aditya Puri, former MD of HDFC Bank and a senior advisor to Carlyle.
Following that announcement, PNBHF share price doubled over the next week.
Calling the EGM notice “ultra vires” of the company’s Articles of Association (AoA), Sebi said it should not be acted upon until the company undertakes the valuation of shares — as prescribed in its AoA – by an independent registered valuer.
In an announcement to the stock exchanges late Saturday evening, PNBHF, as instructed by the regulator, made public the contents of Sebi’s letter.
In its letter, Sebi further said that the valuation report by the independent valuer should be considered by the company’s board while deciding on the preferential issue.
PNBHF, however, claimed its board of directors believes that the company acted in compliance with all relevant applicable laws. “The company is evaluating further steps in this regard,” it said indicating that it may challenge the Sebi letter.
On June 8, The Indian Express reported how a leading proxy advisory firm, Stakeholders’ Empowerment Services, at the behest of minority shareholders, had red-flagged the proposed transaction.
On the pricing of the preference share at Rs 390, PNBHF, the firm’s report said, ignored its AoA which calls for the price to be “determined by the valuation of a registered valuer.”
Given that the book value of PNBHF share is Rs 540, that would have pegged it at a more realistic level, experts said, as it gives an indication of its intrinsic value.
Instead, the company went by SEBI rules on pricing under which it’s based on either 12-week or two-week highs.
The preference share allotment by PNBHF will leave PNB with just 20.3% stake in the housing finance major. This means it will not only lose its dominant shareholder status but also its veto power on the board of the company. The Carlyle Group will see its stake rise to above 50 per cent.
On June 14, The Indian Express also 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.