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Saturday, July 31, 2021

PNB advises recasting deal, associate awaits SAT order

In a stock exchange filing on Wednesday, PNB Housing Finance said that its promoter PNB sent a letter on July 4, in which it conveyed a decision taken by the PNB board.

By: ENS Economic Bureau | New Delhi |
July 8, 2021 12:41:30 am
A banner for PNB Housing Finance Ltd’s IPO offering. (Express Archive)

In what can be seen as a disregard to the advisory from its promoter — Punjab National Bank — to reconsider restructuring of the Rs 4,000-crore deal between PNB Housing and investors led by Carlyle, the board of housing finance company passed a majority resolution and decided to wait for the order of the Securities Appellate Tribunal in the matter.

In a stock exchange filing on Wednesday, PNB Housing Finance said that its promoter PNB sent a letter on July 4, in which it conveyed a decision taken by the PNB board. According to the exchange filing, PNB board through its letter told PNB Housing to “take cognizance of the directive issued by SEBI vide their letter dated June 18, 2021 and reconsider restructuring the contours of the deal/transaction of the capital raising in line with such SEBI directive.”

However, the board of PNB Housing decided to wait for SAT order. In its filing with exchanges, PNB Housing said that the board of the company by a majority resolution passed on Wednesday, “decided that since the issue involved relates to interpretation of law and is sub-judice before the Hon’ble Securities Appellate Tribunal (“SAT”), the Board will await the SAT’s order on this issue.”

The issue revolves around issuance of preference shares worth Rs 4,000 crore by PNB Housing to investors led by Carlyle. On May 31, PNBHF issued a notice for an EGM of shareholders on June 22 to approve the issuance of shares of the company to investors led by Carlyle including Aditya Puri, former MD of HDFC Bank and a senior advisor to Carlyle.

On June 18, in a letter issued to PNB Housing Finance, the capital markets regulator, Securities and Exchange Board of India, had effectively put on pause on its Rs 4,000-crore share allotment to a group of investors led by The Carlyle Group.

Calling this 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.

PNB Housing moved the SAT on June 21 against the Sebi notice. In its interim order the tribunal gave its nod to PNB Housing Finance to hold its EGM for shareholder approval to the share allotment to investors led by Carlyle. It also directed the company to not declare the results of voting to be held on June 22 until further orders from the tribunal.

While the hearing on the matter was scheduled for Monday, PNB Housing sought an adjournment and the Tribunal adjourned the case for July 12, 2021.

It is important to note that if the shareholders approved the preference share allotment on June 22, and legal issues didn’t come in the way, the US-based private equity giant would 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.

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 indication of intrinsic value.

Instead, the company went by SEBI rules on pricing under which it’s based on either 12-week or two-week highs.

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.

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