Carlyle deal: Proxy firm SES says PNB Housing’s retail shareholders shortchanged

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According to Stakeholders Empowerment Services (SES), a rights issue would have been a fairer and better option. It says that PNB Housing could have raised the same amount of capital via a rights issue and Punjab National Bank (PNB) could have renounced its right entitlement to Carlyle at a market-related price.

The stock price of PNB Housing Finance has seen a significant rally of over 105 percent since the announcement of capital infusion by Carlyle. The company will raise Rs 4,000 crore at Rs 390/share via the preferential issue, where Carlyle will contribute to 80 percent of the issue.
The shares of PNB Housing Finance are up over 130 percent in the last one month and have gained more than 320 percent in one year.
However, according to Stakeholders Empowerment Services (SES), a rights issue would have been a fairer and better option. It says that PNB Housing could have raised the same amount of capital via a rights issue and Punjab National Bank (PNB) could have renounced its rights entitlement to Carlyle at a market-related price.
SES, run by JN Gupta, also says that the transaction is unfair to public shareholders and shareholders of PNB, and that the board of both PNB and PNB Housing have failed their minority shareholders and the exchequer.
“85 percent of the shareholders have decided either they want to take preferential or don’t want to take, but they have forgotten the 15 percent. My argument is if 85 percent is a party to it, why not make 15 percent more party to it, and PNB can renounce their right or not, let them do whatever they want. But at least it will be in a transparent manner. The issue is very clear, you have forgotten about the retail shareholders,” JN Gupta told CNBC-TV18.
Due to non-participation, PNB’s stake will be naturally diluted from 32.6 percent currently to 20.3 percent. The fresh capital being infused is nearly 2x of the amount that was earlier anticipated/guided for by the company and 45 percent of equity capital as of March 2021.
At Rs 390 per share (11 percent discount to the last closing before the announcement; versus SEBI’s floor of Rs 385), existing shareholders would get diluted by 38 percent.
Post the preferential allotment, Carlyle (including affiliate) will hold 50.2 percent of PNB Housing Finance while General Atlantic and SSG Capital Partners will own 9.8 percent and 3.8 percent, respectively.
Further, Aditya Puri, former MD & CEO, HDFC Bank, currently Senior Advisor for Carlyle Asia, will be appointed as Carlyle’s Nominee Director and will help the company with its growth ambitions.
He will hold 0.2 percent of PNB Housing Finance through participation in the current round.
Thus, analysts estimate that individual investors’ shareholding in the stock would decline to 3.5-4 percent.
According to Amit Tandon, MD of IiAS, though the rights issue would have been a good move, he believes that the rights issue at a steep discount would lead to other players taking stake at lower prices.
“In principle, I agree with JN Gupta. Our view is also that rather than a QIP, it is always better to do a rights issue. Having said that, we realise that the circumstances in this issue are significantly different,” he said.
Tandon said, “PNB was very clear that they are not going to bring in the money, whether it is on account of what RBI said or due to their own fund constraints, they didn’t have the ability to do so. Therefore, to plan a rights issue in such a scenario, how does one price it, does one price it at a discount, can you strike a deal with Carlyle who was going to buy it at that stage, etc., it kind of leaves a lot of gaps in the structuring at that stage itself. It is a function of what you price it at, is it going to be a rights issue priced at close to the market price, or is it going to be at a steep discount? If it is at a steep discount, then there could be other players who kind of get into selling or acquiring the share. So, it kind of muddies the whole water. Therefore, from that perspective, going ahead with a QIP, according to us, made a lot more sense than doing a rights issue,” he said.
Tandon also believes that Aditya Puri coming in is the trump card in the PNB Housing-Carlyle deal, and said that the share price run-up is on the back of that.
For the full discussion, watch the video.

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