Home >Companies >News >Carlyle may not play ball in contentious deal for PNB Housing

MUMBAI : Private equity fund Carlyle Group, which is trying to take control of PNB Housing Finance Ltd, may not be able to raise its offer for the home financier if its challenge of the markets regulator’s order to stall the transaction is dismissed by an appeals court.

According to two people directly aware of the internal discussions, Carlyle may not be able to secure approval from its investors to increase its offer of infusing 4,000 crore into PNB Housing Finance (PNBHF) at 390 a share.

“Since Carlyle is already invested in PNB Housing since 2015, it finds itself in a difficult situation of having to protect the interests of its existing fund’s investors (Quality Investment Holdings, which owns a 32.21% stake) as well as incoming investors, which is Pluto Investments. But Carlyle has had to ensure that the deal is acceptable to both sets of investors," said one of the two people cited above. Both requested anonymity.

“All said and done, PNB Housing Finance needs an urgent round of equity, and internally for Carlyle, it boils down to one fund bailing out the other," the second person said.

On 31 May, a clutch of investors led by Carlyle Group announced an investment of 4,000 crore in PNB Housing Finance.

Carlyle Group Inc., Pluto Investments, an affiliated entity of Carlyle Asia Partners IV, and Carlyle Asia Partners V agreed to invest up to 3,185 crore through a preferential allotment of shares and warrants.

The investment is crucial for PNB Housing, whose business was impacted by the liquidity crunch that hit non-bank lenders following the collapse of IL&FS in September 2018.

PNB Housing’s stock price was further hit by the covid-19 pandemic.

The lender’s asset quality has deteriorated over the last fiscal year, with gross non-performing assets as a percentage of total loans spiking to 4.44% at the end of March 2021 from 2.75% a year earlier.

Shares of PNB Housing are trading at less than half of their lifetime high of 1,715.3 in August 2017.

However, the transaction came under the scrutiny of the Securities and Exchange Board of India (Sebi) after proxy adviser Stakeholders Empowerment Services (SES) termed the deal “unfair and abusive" to the mortgage lender’s minority shareholders.

SES also highlighted that Punjab National Bank agreed to cede control of its mortgage unit to the Carlyle Group without seeking a higher share price.

Markets regulator Sebi, in a letter to PNB Housing, said that the transaction should be halted until the company undertakes the valuation of shares by an independent valuer. On 18 June, PNB Housing challenged the Sebi order.

The markets regulator, in arguments presented to the Securities Appellate Tribunal, said that a valuation report is mandatory before a company raises capital via preferred allotment of shares to ensure all shareholders are treated equally, especially if such a preferential allotment entails an open offer due to change in control and ownership.

Earlier this month, State-run Punjab National Bank asked the board of PNB Housing Finance to reconsider the contentious 4,000 crore stake sale to Carlyle Group and others, and carve out an alternative capital-raising plan compliant with regulatory rules.

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