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State-run Punjab National Bank has asked the board of its PNB Housing Finance Ltd unit 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.

PNB Housing told exchanges on Wednesday that its board met on 5 and 6 July after receiving the letter from its parent on 4 July. The housing finance company said it will decide on the issue after the Securities Appellate Tribunal (SAT) pronounces its judgement.

“The PNB letter conveyed a decision taken by the board of directors of PNB at their meeting held on 3 July 2021 (on the basis of a legal opinion obtained from a law firm and deliberated at such board meeting) that, in their view, the board of directors of the company should take cognizance of the directive issued by Sebi vide their letter dated 18 June 2021 and reconsider restructuring the contours of the deal/transaction of the capital-raising in line with Sebi directive," PNB Housing said in its regulatory filing.

On 23 June, Mint first reported that Punjab National Bank may have vetoed the deal and was likely to propose an alternative capital raising plan. This came after the Securities and Exchange Board of India halted the stake sale and asked the company to conduct an independent valuation before pricing any capital-raising deal.

The company said that after discussing the matter, the board of PNB Housing, by a majority resolution passed on 6 July, decided that since the issue involved relates to the interpretation of the law and is sub-judice before SAT, the company will await the tribunal’s order on this issue. SAT will hear the matter on 12 July.

PNB wants its housing finance arm to propose a capital-raising plan that won’t attract Sebi’s objection.

“PNB Housing, as a listed entity, should have disclosed it to all the shareholders through an exchange filing that the company has received such a letter from its promoter and the largest shareholder," said J.N. Gupta, founder and managing director of SES.

“This is price-sensitive information and would have influenced the market price of PNB Housing’s stock; it would have helped the public shareholders of PNB Housing take an informed decision while trading in PNB Housing’s stock."

Shareholders of PNB Housing on 22 June voted on a special resolution for a preferential allotment of shares to Carlyle and other investors. The fundraiser needs approval from 75% of those present and voting. The parties to the deal are PNB and private equity firms Carlyle, General Atlantic and Ares SSG, which own a combined 85% stake in PNB Housing.

Controlling over 32% as a promoter group, Punjab National Bank can block the special resolution by voting against the preferential allotment of shares to the investors led by the Carlyle Group.

“If PNB abstained from casting its vote, the resolution may get a majority vote in favour, but the ultimate decision on fundraising will remain with the board, and if PNB itself is not comfortable with the fundraising plan, the board of PNB Housing is unlikely to go ahead with any such plan," a person aware of the matter said.

Results of the voting have not been disclosed since SAT has directed PNB Housing to keep the figures in a sealed cover until its final order.

As a public sector unit, Punjab National Bank is unlikely to do anything that has been objected to by Sebi, the person said.

On 12 June, Mint first reported that Sebi was scrutinizing the 4,000 crore share sale by PNB Housing after proxy adviser Stakeholders Empowerment Services (SES) termed the deal “unfair and abusive" to the mortgage lender’s minority shareholders. SES also highlighted that PNB agreed to cede control of its unit to the Carlyle Group without seeking a higher share price.

A PNB Housing Finance spokesperson said, "The company received a letter from PNB on 4 July 2021 with an advise to place the said letter before the board of PNBHFL for necessary action. As informed to the stock exchanges, the company had placed the letter to the board for discussion on 5 July and in continuation on 6 July. As advised to the exchanges, the board decided that the matter is sub-judice and the company will pursue before SAT its existing appeal. The outcome of the board meeting dated 5 July and 6 July was informed to both the exchanges"

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