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Thursday, August 05, 2021

PNB Housing-Carlyle deal: Sebi to probe board role, disclosure lapses

According to sources, the market regulator has conveyed its intention to probe the role of board of directors and the company irrespective of the verdict of the Securities Appellate Tribunal (SAT) on the Sebi action against PNB Housing.

Written by Sandeep Singh , George Mathew | Mumbai, New Delhi |
Updated: July 17, 2021 1:59:45 am
Sebi conveyed its intention to probe the role of board and the company, irrespective of the verdict of SAT on its action against PNB Housing. (Photo: File)

The Securities and Exchange Board of India (Sebi) is planning to probe the role of the board of directors of PNB Housing Finance in the Carlyle stake deal.

According to sources, the market regulator has conveyed its intention to probe the role of board of directors and the company irrespective of the verdict of the Securities Appellate Tribunal (SAT) on the Sebi action against PNB Housing. Punjab National Bank MD & CEO S S Mallikarjuna Rao is the Chairman of the PNB Housing board.

The regulator, in its submissions to SAT on Friday, also made it clear that irrespective of whether the deal goes through or not, the board approval in itself will have ‘legal consequences’. The regulator also alleged that there are numerous disclosure lapses on the part of the housing finance company, which need to be dealt with separately.

The case has been adjourned and will be heard again on Monday, when PNB Housing will get a chance to counter Sebi’s argument.

PNB Housing moved SAT against Sebi’s June 18 order. In its interim order, the tribunal gave its nod to PNB Housing Finance (PNBHF) to hold its Extraordinary General Meeting (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.

Sebi had earlier 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 per cent.

On May 31, PNBHF issued a notice for an 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.

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.

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 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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