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MUMBAI: The board of PNB Housing Finance Ltd (HFL) had prima facie failed to uphold the interests of minority shareholders of the company, the Securities and Exchange Board of India (Sebi) said on Friday, defending its decision to intervene in the matter of preferential allotment of shares to a select group of investors led by the Carlyle Group.

It was necessary for shareholders to get the correct valuation at which investors led by the Carlyle Group would acquire shares and management control of the mortgage lender, the markets regulator said in its concluding arguments before the Securities Appellate Tribunal (SAT).

PNB Housing should have submitted an independent valuation report, as stipulated in its articles of association (AoA), to ensure transparency and fairness, which in turn, would have allowed shareholders to vote accordingly in the company’s recently held extraordinary general meeting (EGM), the Sebi counsel argued.

The tribunal will next hear the matter on Monday.

The board of PNB Housing has violated the AoA by not getting an independent valuation report done for pricing the deal commensurate with the company’s present book value, Sebi reiterated. The markets regulator maintained that the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, (ICDR Regulations) provided for a floor price below which shares cannot be issued, but that level could not be construed as a price ceiling.

On 14 June, the tribunal questioned why Sebi chose to intervene in the matter before the company’s shareholders could vote on the proposal in a scheduled EGM. Approving the proposal would have led to a change of ownership of the mortgage lender, with the private equity giant taking the driving seat.

In an apparent shift of stance on 4 July, Punjab National Bank (PNB), the controlling shareholder in the company, advised the board to reconsider the deal and think of other routes for raising capital. PNB Housing said on 7 July that as the issue relates to the interpretation of the law, and is sub-judice before SAT, the company will await the tribunal’s order on this issue.

PNB Housing needs approval from 75% of shareholders for the deal to go through.

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 more than 32% as a promoter group, PNB can block the special resolution by voting against the preferential allotment.

The voting took place on 22 June, but the results have been kept in a sealed cover, awaiting the SAT’s final order.

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