After red flags, PNB Housing Finance calls off its Rs 4,000-crore Carlyle deal

PNB Housing has terminated the share subscription agreements executed with Pluto Investments, an affiliated entity of Carlyle Asia Partners IV, and Carlyle Asia Partners V, which entailed an investment of Rs 3,185 crore.

“We have been informed that consequently Pluto Investments (together with persons acting in concert) will be initiating the process to withdraw the open offer made by them at Rs 403.22 per share,” PNB Housing said in an exchange filing.

The issue, if it had gone through, would have made the US-based private equity giant a majority shareholder in the company — taking its share from 32% to 50.1% — and brought down the stake of Punjab National Bank in its housing finance subsidiary from 32.6% to 20.3%.

On June 8, The Indian Express had reported how a leading proxy advisory firm, Stakeholders’ Empowerment Services, at the behest of minority shareholders, had red-flagged the proposed transaction.

On the pricing of the preference share at Rs 390, PNBHF, the firm’s report said, ignored its Articles of Association, which calls for the price to be “determined by the valuation of a registered valuer.”

On June 14, The Indian Express had reported that of the 12 PNBHF board members who cleared the allotment, at least seven had dealt with the US PE giant — including two Carlyle employees who are nominee directors.

On Thursday, the PNB Housing board “noted that due to the protracted litigation and the continuing interim order of the SAT dated June 21, 2021, there is no clarity on the shareholders’ approval for undertaking the preferential issue”.

In addition, regulatory approvals required for the preferential issue, are pending and it is unclear whether such approvals will be forthcoming while the legal proceedings are ongoing, the company said.

“The company’s capital raising plans will be further delayed and such uncertainty will continue. The board’s primary objective is to raise capital to support the growth of the company, and the board believes that the current situation is not in the best interests of the company and its stakeholders,” PNB Housing said.

The proposed preferential issue has been held up for more than four months — after already having taken over two years — due to pending legal proceedings before the Securities Appellate Tribunal.

On June 18, 2021 capital markets regulator Sebi issued a letter to PNB Housing and directed that the resolution relating to “issue of securities of the company” in the EGM notice dated May 31, is “ultra-vires” of the company’s Articles of Association and it should not be acted upon until the company undertakes the valuation of shares — as prescribed in its AoA – by an independent registered valuer.

While the company filed an appeal with SAT, the appellate authority passed an interim order on June 21.

In its order, though the Tribunal gave its nod to PNB Housing Finance to hold its extraordinary general meeting for shareholder approval of the Rs 4,000-crore share allotment to a clutch of investors led by Carlyle Group, it directed the company to not declare the results of voting that was to be held on June 22, until further orders from the tribunal.

On August 9, a split verdict was announced, in which the Presiding Member of SAT issued an order in favour of the company and set aside the Sebi letter dated June 18, while the Judicial Member’s order upheld the Sebi letter.

Further, SAT ordered that the interim order dated June 21, 2021 was to continue until further orders of SAT.

Meanwhile, Sebi preferred an appeal against the order of the Presiding Member of SAT before the Supreme Court, which is currently pending. “There continues to be no visibility or certainty as to the timeline for judicial determination of the legal issues, in particular as a third member of the SAT is yet to be appointed,” PNB Housing said.