PNB HFC deal: SES questions PNB for surrendering control to Carlyle at a depressed price

Mini

CNBC-TV18 has exclusive access to this report - it points at corporate governance lapses in the deal, asks if the rights issue would have been better for PNB. PNB Housing in a statement has defended the deal. Sources in the company say PNB did not get approval for a Right Issue from the RBI.

PNB HFC deal: SES questions PNB for surrendering control to Carlyle at a depressed price
In a scathing report, the proxy advisory firm, SES has raised several questions on the deal struck by PNB and Carlyle which gave the private equity firm control over PNB Housing Finance.
Following are the points mentioned by the report which question the legitimacy of the transaction and alleges corporate governance lapses.
  • Why PNB has willingly surrendered its control, without extracting fair compensation?
  • Why did the Board agree to price preferential offer at discount to book value
  • Was the rights issue a better proposition? Has PNB sacrificed Rs 2000+ crore?
  • 85 percent shareholder part of the deal only public left out
  • Independent Directors Affiliation- does it impede Independence?
  • Pricing - A convenient refuge under ICDR
  • The deceptive objective of the issue
  • Speculative Disclosure by the Company
  • The Resolution is ultra vires AoA of PNB HFC
  •  
    Deal At A Fair Value?
    "SES is of the view that Rights Issue is the best method of capital raising unless it is for a strategic reason. In this case, 85 percent are decision-makers or participants in the capital raising, what harm it would have caused if 100 percent of shareholders were offered Rights? The only harm would be as PNB would not have been allowed to gift away control to Carlyle without a premium.”
    Questions Raised On Articles Of Association
    "SES is of the opinion that the proposed resolution is not in accordance with the provision of AoA of the Company and ultra vires…the valuation provided by the Registered valuer or that of SEBI ICDR, whichever is higher should be the minimum issue price. While there is a disclosure of pricing as per the SEBI ICDR in the notice, there is no mention of the price obtained from the Valuer and the valuation report. Hence, AoA appears to have been violated in the proposed resolution”
    Independence Of The Board Questioned
    "SES is of the opinion that the Board of directors of the Company does not have the power to re-appoint Mr. Chandrasekaran Ramakrishnan and Mr. Nilesh S Vikamsey as IDs for a second term."
    PE sources told CNBC-TV18 that the deal is a bailout for PNB Housing Finance. PNB did not have funds to invest more. There was a lack of institutional investor interest in the PNB Housing Finance stock but
    Aditya Puri’s investment has added optimism to the stock. The immediate fund injection has been provided by the deal, the sources added.
    PNB Housing Finance Sources
    PNB is not ceding control, and it will continue as a promoter of the company.
    • To ensure PNB continues to have the ability to provide its valuable support, it will have the right to continue appointing two directors to the Board of PNB Housing Finance even as their ownership falls below 26 percent and the company’s articles are being amended accordingly.
    • As the company had informed on various occasions, PNB wanted to participate in the capital raise plan of the company but did not receive regulatory approval.
    • The capital infusion was critical and various rating agencies and research houses have raised this in their reports.
    • The company has undertaken all regulatory and compliance-based due diligence while executing this deal.
    • The Capital raise will enable the company to strengthen its balance sheet by bring down the leverage and increasing the capital adequacy. Further, it will help in accelerating the growth of the Company in the retail segment including self-employed and affordable housing loans such as the Unnati segment.
    • PNB did not get the RBI's approval to participate in the Rights Issue. The company evaluated all the best options available.
      Comments From Parties On The Deal
      Carlyle in an e-mail response "declined to comment".
      PNB did not respond to email queries. PNB CEO SS Mallikarjuna Rao told CNBC-TV18 on June 7 that the pricing of the deal was decided as per SEBI formula and the requirement of the capital raise increased in PNB Housing due to Covid-19.
      PNB Housing Finance in a statement said, “The key objective of raising capital is to augment capital adequacy, reduce gearing and accelerate growth with a focus on retail housing including self-employed and affordable housing loans such as the Unnati segment. As a responsible company, PNB HFC has consistently striven for sound business practices along with excellent corporate governance. The company has, over the period, successfully demonstrated through its performance its ability to grow and compete.
      "This deal for capital raising has been arrived at with appropriate due diligence keeping the best interests of all stakeholders in mind. The culmination of this deal is a distinct reflection of PNB HFC’s ability for retaining the faith and confidence of all of its existing investors.
      "We are confident this will take the company forward to its deserving success and growth and expected to unlock value for all the stakeholders including minority and retail investors."

      Market Movers

      CompanyPriceChange%Loss
      Divis Labs4,313.05 -75.00
      Coal India157.15 -2.20
      Bajaj Finserv11,798.70 -127.45
      Hindalco390.85 -3.95
      Dr Reddys Labs5,410.85 -50.50
      CompanyPriceChange%Loss
      Bajaj Finserv11,799.05 -132.75
      Dr Reddys Labs5,414.90 -44.65
      Titan Company1,723.50 -11.80
      Sun Pharma673.20 -4.05
      Bajaj Finance6,160.70 -33.50
      CompanyPriceChange%Loss
      Divis Labs4,313.05 -75.00 -1.71
      Coal India157.15 -2.20 -1.38
      Bajaj Finserv11,798.70 -127.45 -1.07
      Hindalco390.85 -3.95 -1.00
      Dr Reddys Labs5,410.85 -50.50 -0.92
      CompanyPriceChange%Loss
      Bajaj Finserv11,799.05 -132.75 -1.11
      Dr Reddys Labs5,414.90 -44.65 -0.82
      Titan Company1,723.50 -11.80 -0.68
      Sun Pharma673.20 -4.05 -0.60
      Bajaj Finance6,160.70 -33.50 -0.54

      Currency

      CompanyPriceChng%Chng
      Dollar-Rupee73.31250.04250.06
      Euro-Rupee88.94300.27100.31
      Pound-Rupee103.33400.08400.08
      Rupee-100 Yen0.66580.00020.02