Is PNB Housing Finance giving control of its Housing Finance business to PE major Carlyle at a lower priced deal without extracting control premium? Marker regulator SEBI is looking into the capital raising plan announced by PNB Housing Finance, since corporate governance experts have raised red flags.
Mumbai based SES, a proxy advisor to shareholders, said that PNB Housing finance was surrendering control of PNB housing and the deal was an abuse of minority shareholder rights.
Bourses to probe
SEBI has also asked stock exchanges to look into the deal and see if there are any other red flags, sources said. There is an internal feeling in SEBI that the deal should be studied by experts since serious questions have been raised, sources said.
PNB Housing said it was not giving control to Carlyle. But on Thursday, SES issued a clarification and rubbished PNB’s claim. SES says that the fact that PNB has not ceded control is technically and legally incorrect.
‘Gives controlling power’
Carlyle along with Persons Acting in Concert would hold more than 50 per cent stake in the company, which gives them controlling power, in terms of voting rights as per SEBI Takeover Code, SES said.
“PNB would have 20 per cent stake and would be reduced to a smaller partner. Carlyle and PNB both have power to nominate 2 directors on the Board, however, the post of chairperson shall be nominated by Carlyle. Since, the chairperson shall have the casting vote (Article 109(b) of PNBHFL) in case of a tie, Carlyle is effectively controlling the board also,” SES said on Friday.
SES has further said that PNB would be losing at least ₹2,000 crore in not insisting on a rights issue. PNB Housing board approved preferential allotment of shares worth ₹4000 crore to Carlyle.
BV and intrinsic value
“The Company wants investors to believe that even with book value per share of about ₹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
PNB Housing has said that capital infusion was critical and various rating agencies and research houses have raised this need for capital in their reports. In the past two years, rating agencies have downgraded the rating of the Company from AA+ (Stable) to AA (Negative) with one of the key concerns as capital raise.
The key objective to raise capital is to augment its capital adequacy, reduce leverage and accelerate growth. Further the capital raise provides enough capital buffer to strengthen the Company’s balance sheet to face any potential stress from second or subsequent Covid waves.