Image Credit: Financial times , twitter.com/pnbhousingfinan
The Carlyle Group’s proposed investment worth Rs 4,000 crore in PNB Housing Finance Ltd is in trouble as the market regulator SEBI has stepped in to investigate the deal. The Ministry of Finance is also examining the deal, sources told moneycontrol.com . The development comes after a proxy advisory firm raised questions about the fundraise led by the American private equity firm including the process by which PNB Housing’s valuation was decided.
The proxy advisory firm, named Stakeholders Empowerment Services(SES) has alleged that the proposed deal is against the interests of the shareholders of both PNB Housing Finance and Punjab National Bank. Among other accusations, the advisory firm says that the investment is being done at a valuation less than even the book value of the company.
“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,” SES said.
SES believes that PNB is ceding control over PNB Housing without getting the justified compensation. In a report, the advisory firm states that the consortium of investors led by Carlyle would effectively control 50% of the stake in the housing finance company while PNB’s share would be reduced to 20%.
Carlyle would get to nominate 2 board members of PNB Housing and also the chairperson of the board, effectively giving it control over both equity and board matters. Therefore, “It is surprising that the Company is advancing a logic that its holding in terms of number of shares will remain same,” SES asserted.
In addition, SES questioned the rationale behind using SEBI ICDR pricing guidelines to decide PNB Housing’s valuation, arguing that the ICDR guidelines indicate the past price at which the stock was traded, not its value. The proxy advisory firm has advised minority shareholders of the housing finance firm to vote against the proposed preferential allotment of shares to the Carlyle led consortium of investors.
However, PNB Housing has denied any wrongdoing in the deal. “The company’s capital raise is in compliance with the Companies Act, 2013 and the SEBI ICDR Regulations,” a company spokesperson told moneycontrol.com . The company representative further revealed that they had received a query regarding the fundraise from NSE and BSE on Friday which would be addressed in due course of time.