PNB Housing Finance deal with Carlyle is under Sebi scanner

SEBI headquarters (Representative image)

PNB Housing Finance Ltd’s Rs 4,000 crore deal with Carlyle Group Inc. has come under the scanner of the Securities and Exchange Board of India (Sebi), the market regulator, after a proxy advisory firm questioned a proposed investment in the mortgage lending arm of Punjab National Bank by investors led by the American private equity firm.

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

According to SES, PNB is ceding control over PNB Housing Finance to the Carlyle-led investors without extracting fair compensation in return.

“The Company wants investors to believe that even with book value per share of ~₹530, the proposed issue price is fair although book value indicates that the intrinsic value is quite higher than the issue price. If one observes P/E or P/BV ratio of private Housing Finance Companies (‘HFC’), this can easily be spotted,” SES said.

The proxy advisory firm has counselled minority shareholders to vote against the proposed preferential allotment of shares in PNB Housing Finance, in which private equity firm Genral Atlantic also has a stake, to the Carlyle-led group.

Share price of PNB Housing Finance closed at Rs 816.90 on June 11 after losing 4 percent in Thursday's trade.

Responding to a query from Moneycontrol, a PNB Housing Finance spokesperson has said:  "The Company’s capital raise is in compliance with the Companies Act, 2013 and the SEBI ICDR Regulations. On May 31st 2021 all the exchanges were informed about the capital raise transaction of PNB Housing Finance as per the prescribed LODR regulations. We have received a query from NSE and BSE at 3 PM on 11^th June, and we will be addressing it in due course."

BSE, Carlyle and General Atlantic declined to comment for this story. Sebi and NSE hadn’t responded to requests for comment.

In a report, SES noted that Carlyle and persons acting in concert with the investment group would hold a 50 percent stake in PNB Housing Finance and Punjab National Bank’s holding would be reduced to “~20 percent stake from 32 percent currently.”

Carlyle and Punjab National Bank would both get to nominate two directors to the housing financier’s governing board, but the former would be empowered to nominate the chairperson as well\. “Therefore, Carlyle has control not only by way of equity, but also on Board matters. It is surprising that the Company is advancing a logic that its holding in terms of number of shares will remain same,” SES said.

SES raised concern on the valuation.“It may be noted that the provisions in SEBI ICDR require computation of floor price based on previous period’s market price. However, it is nowhere mandated that only such price shall be the issue price. And it nowhere states that it is a valuation. In the extant case, SES is of the opinion that shelter cannot be taken under SEBI ICDR pricing guidelines stating that Rs 384.6 is the fair value for a Company having Rs 520 book value. SEBI ICDR indicates past prices at which the stock was traded and need not necessarily indicate the value”.

ICDR is short for issue of capital and disclosure requirements.

According to the company, ICDR provides for the minimum price of the equity shares. “The Company calculated the floor price as prescribed by SEBI and the issue price of INR 390/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.