SEBI insists preferential offers need independent valuation

In the last two months, the proposed Rs.4,000 crore preferential offer by PNB Housing to Carlyle has become the bone of contention. The first objection to the deal came from proxy firm SES. Shareholder Empowerment Firm (SES) is run by former SEBI ED, J N Gupta. SES expressed reservations about the preferential offer in that there was no independent valuation done, was priced at discount to book value and did not factor control premium. The legal stand-off began with SEBI asking PNB Housing to withhold the EGM vote and PNB Housing, in turn, approaching SAT.

SAT has heard the arguments of SEBI and PNB Housing but reserved its final judgment. Meanwhile, in an interesting development, SEBI has insisted that all preferential allotments of shares pre-suppose an independent valuation. In the PNB Housing case, SEBI insisted that since the Articles of Association mandate an independent valuation for such deals, it should have been done. PNB Housing has argued that since ICDR rules do not stipulate independent valuations for listed companies, they had done the preferential allotment to Carlyle based on ICDR formula.

Also Read: SEBI halts PNB housing - Carlyle deal

The latest clarification from SEBI makes some interesting points. Firstly, ICDR is only a guide to determine minimum price and not a formula for valuation. Secondly, SEBI has also underlined that in all such cases, the only guiding factor should be minority shareholders getting a fair and just price. Lastly, SEBI pointed out that since the PNB Housing case resulted in change of control, an independent valuation should have been done by PNB Housing. The last word is yet to be said, but it could have implications for LIC Housing, Barbeque nation and a host of other proposed preferential allotments.