The Securities and Exchange Board of India (SEBI) has argued that the Article of Association (AoA) was legally binding and the Companies Act empowered it to intervene in the Rs 4,000-crore fundraising deal between PNB Housing Finance and a clutch of investors led by the Carlyle Group.
SEBI was presenting its side before the Securities Appellate Tribunal (SAT) on July 13, after PNB Housing argued on Monday that the AoA was just a bilateral agreement. The housing financier also told SAT that it had complied with the Issue of Capital and Disclosure Requirement (ICDR) regulations while going ahead with the deal.
This account has been pieced together from conversations with people familiar with the matter. They didn’t want to be named.
Contesting this argument, SEBI told the appellate that ICDR regulations do not stop with prices, but cover the rights of the shareholders as well. There is no conflict of interest between AoA, ICDR and the Companies Act, it said.
SEBI has the right to intervene in this case as it is against the interest of the minority shareholders, the regulator argued. If the AoA clearly mentions independent valuation, why have they (PNB Housing) not undertaken independent valuation, it asked.
In this case, the management control is also transferring and the valuation impacts the open offer price also, it said.
PNB Housing had told the appellate that SEBI had issued a letter to the independent directors on June 25, asking why they failed to save the interests of minority shareholders. The next hearing is on Friday.
PNB Housing Finance-Carlyle deal
On May 31, PNB Housing’s board approved fundraising through a preferential allotment of shares worth Rs 3,200 crore and warrants worth Rs 800 crore to Carlyle, General Atlantic and Salisbury Investments, an entity owned by Aditya Puri.
The price of the preferential issue of shares and warrants was fixed at Rs 390 per share, which was only Rs 6 higher than the floor price under the ICDR norms. For the warrants issue of Rs 800 crore, only 25 percent is needed to be infused on allotment, with the remaining to be infused within 18 months. Through this preferential issue, PNB Housing was also ceding management control to Carlyle and the persons acting in concert (PAC), proxy adviser Stakeholders Empowerment Services (SES) had alleged.
SEBI, in a letter to the company on June 18, stated: “The current resolution bearing item no. 1 (Issue of Securities of the company and matters related therewith) of EGM notice dated May 31, 2021, is ultra vires of AoA and shall not be acted upon until the company undertakes the valuation of shares as prescribed under 19(2) of AoA, for the 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.”
Last week, PNB Housing Finance said its promoter Punjab National Bank
has asked it to consider restructuring the proposed Rs 4,000-crore capital infusion deal