PNB Housing Finance Decides to Scrap Carlyle Deal

In early trades on 18th October, the stock of PNB Finance was locked in lower circuit as a slew of brokers and analysts downgraded the PNB Housing stock. The downgrade came after PNB Housing and Carlyle decided to mutually call off the share placement deal due to the legal hassles and absence of any visibility of the deal getting through.

Chronology of the PNB Housing – Carlyle deal

Here is the chain of events that eventually led to the deal being scrapped

a) On May 31st, PNB Housing approved a fund raising plan of Rs.4,000 crore by Carlyle PE Fund which would entail allotment of shares and warrants to Carlyle group. The deal would have made Carlyle the largest single shareholder in PNB Housing Finance.

b) Subsequent to the deal, proxy advisor, Shareholder Empowerment Services (SES) objected to the deal on 3 grounds. Firstly, a private placement over a rights issue was unfair to shareholders. Secondly, no control premium was being paid by Carlyle for becoming the largest shareholder. Lastly, no independent valuation was done.

c) Subsequent to the furore raised by the case, SEBI instructed PNB Housing not to go ahead with the deal till an independent valuation was conducted. However, PNB and PNB Housing maintained their stand that independent valuation was not required since PNB Housing was already listed.

d) Meanwhile, PNB Housing approached the Securities Appellate Tribunal (SAT) against the SEBI order. The SAT offered a split verdict, which was ambiguous from an implementation perspective. However, SEBI has already approached the Supreme Court to strike down any order of SAT not in the interests of minority shareholders.

e) With the deal stuck in legal wrangles, the stock price of PNB Housing which had rallied from Rs.390 to Rs.920, has now fallen nearly 30% to Rs.607. PNB Housing and Carlyle have already initiated the process of cancelling the agreement.

While that puts the deal to rest, it does raise some positive vibes about the activist role played by SES in the deal. The deal was piloted by former HDFC Bank CEO, Aditya Puri. Puri is not only an advisor to Carlyle, but was also supposed to invest in PNB Housing via his investment vehicle, Salisbury Investments.

Also Read:-

PNB Housing shares fall 5% as SEBI halts Carlyle deal