Carlyle-led investment in PNB Housing unfair to minority shareholders, says proxy firm

Earlier this year, RBI had shot down a proposal of Punjab National Bank (PNB) to infuse capital into its subsidiary PNB Housing Finance through a rights issue on concerns of the lender's financial health.

Proxy advisory firm Stakeholders Empowerment Services (SES) said on Tuesday that the proposed preferential issue by PNB Housing Finance is against the interest of public shareholders, PNB shareholders and the government.

In a note to institutional investors, the proxy firm, headed by former Sebi ED JN Gupta, has argued that a rights issue would have been a fairer and better option for raising capital. SES has recommended PNB Housing’s public shareholders to cast their votes against the resolution on preferential allotment.

“In absolute terms existing retail shareholders are getting diluted by 5.83%, in relative terms there is a dilution of almost 34%,” SES said.

“The shareholders owning close to 85% shares, either decided to take preferential offer or voluntarily gave their rights/sacrificed (i.e. PNB),” SES said, adding that people in control ignored existence of minority shareholders. “On the face of it, SES finds this deal unfair to public shareholders of the company and shareholders of PNB. As a controlling shareholder of the company, PNB has blown away the value,” it said in a note.

The housing financier had earlier called an extraordinary general meeting (EGM) on June 22 to take approval of shareholders on the proposed capital raising. Last week, PNB Housing’s board approved preferential allotment of Rs 3,200 crore worth of shares and Rs 800 crore worth of warrants to Carlyle, Aditya Puri’s family investment vehicle Salisbury Investments, General Atlantic and Alpha Investments at Rs 390 per share.

The lender also said Aditya Puri was likely to be nominated to the firm’s board as a Carlyle nominee director. The transaction will also trigger an open offer to acquire 26% from the public as per Sebi norms. The open offer will be made at Rs 403 per share.

“The open offer is a mere formality given the present market price. It is highly unlikely that any shareholder would tender their shares,” SES said. The stock price of PNB Housing Finance rose 94% in a week to Rs 852.20 at Bombay Stock Exchange (BSE).

Some of the experts also believe the preferential issue by PNB Housing Finance is not detrimental to investors.

Amit Tandon, founder and managing director (MD) of Institutional Investor Advisory Services (IiAS), said, “The transaction is not detrimental to investors per se. But since the price of the share has run-up, the deal structure is now being questioned.” The price of the share has moved up because Aditya Puri, former MD of HDFC Bank, has invested and is joining the board, he added

SES has, however, also raised concern over the dilution of retail shareholders’ equity after the preferential issue by PNB Housing Finance. Post the capital infusion, PNB’s holding will drop to 20%, while Carlyle group firms stake will increase to 50%. Currently, PNB holds a 33% stake in PNB Housing and Carlyle firms hold 32% in the mortgage lender.