India: Sebi initiates probe into Carlyle-PNB Housing deal

India Gate. Photo: Abhidev Vaishnav/unsplash

Markets regulator Securities and Exchange Board of India (Sebi) has initiated a scrutiny into PNB Housing Finance Ltd’s recently proposed deal in which a clutch of investors led by American private equity firm The Carlyle Group have proposed to invest Rs4,000 crore in the mortgage finance company, two people aware of the matter told Mint.

The market watchdog’s decision to scrutinize the deal is followed by a report by proxy advisory firm SES, led by J N Gupta, a former executive director of Sebi. The SES report has interpreted that the proposed deal is “unfair and abusive” on minority shareholders of PNB Housing since the company could have opted to raise the capital via a rights issue that could have given an equitable treatment to all classes of shareholders in the company.

The proxy advisory firm has interpreted that the deal is not only discriminatory but also is in violation to the Articles of Association (AoA) and the pricing of the proposed preferential allotment (the deal) has not been done fairly.

SES has also highlighted that PNB was giving away control of PNB Housing to the Carlyle Group without deriving “control premium”.

On 31 May, a clutch of investors led by The Carlyle Group announced an investment of Rs. 4,000 crore in PNB Housing Finance Ltd. The Carlyle Group Inc. Pluto Investments S.a.r.l., an affiliated entity of Carlyle Asia Partners IV, L.P. and Carlyle Asia Partners V, L.P. has agreed to invest up to Rs. 3,185 crore through a preferential allotment of equity shares and warrants, at a price of Rs.390 per share.

Existing shareholders of the company, funds managed by Ares SSG and General Atlantic, are also participating in the capital raise.

As part of this transaction, Salisbury Investments Pvt. Ltd., the family investment vehicle of Aditya Puri, Senior Advisor for Carlyle in Asia and the former CEO & Managing Director of HDFC Bank, will also invest Rs. 25 Crore as per the deal. Puri is expected to be nominated to the PNB Housing Finance Board as a Carlyle nominee Director in due course.

Post the allotment of equity and warrants, Pluto Investments will hold 30.2% in PNB Housing Finance. Carlyle, through a separate vehicle, Quality Investment Holdings, currently owns 32.2% in PNB Housing Finance. Cumulatively, across its two investment vehicles, Carlyle will hold about 50% after the capital raise.

General Atlantic Singapore has agreed to invest 390 crore as part of the deal and will hold 9.8% post equity and warrant allotment. It is an existing investor in the company and currently holds 9.9%. Alpha Investment, a fund managed by SSG Group will hold 3.8%.

SES said a rights issue would have been a fairer and better route. It said 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 said that the board of both PNB and PNB Housing have failed their minority shareholders and the exchequer.

Due to non-participation, PNB’s stake will get diluted from 32.6% to 20.3%, if the proposed preferential allotment is consummated.

However, on Thursday, PNB Housing refuted concerns that its proposed Rs. 4000 crore capital raise is “unfair and abusive” on minority shareholders, stating that the deal is being carried out as the extant norms and the pricing for the preferential issue has been done in compliance with Sebi’s preferential allotment norms and listing guidelines.

According to PNB Housing, the extant rules under Section 62 of Companies Act does provide that pricing for preferential issue of a listed entity need not be required to be determined by the valuation report of a registered valuer and hence the pricing has been done in a fair manner.

PNB Housing clarified on Thursday that even after the proposed deal with Carlyle, PNB will continue to be a promoter.

PNB Housing has been looking to raise capital for the last two years. The first capital raise resolution was passed by the board on 30 July, 2019, followed by further resolution on 3 March, 2020, and then on 19 August, 2020.

But since PNB did not get the requisite regulatory approval to infuse capital in the housing firm, the company has decided to explore raising capital from the market via a preferential allotment.

This article was first published on livemint.com.

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.