PNB Housing Finance hits 5% lower circuit after scrapping Carlyle stake sale.

Concerns regarding asset quality and growth re-emerge with the deal being called off.

The stock on PNB Housing Finance hit its lower circuit of 5% in the early trading session on Monday in reaction to the board decision of terminating the Rs 4,000 crore stake sale to investors led by Carlyle Group.

The Carlyle Group affiliate Pluto Investments has initiated the process to withdraw the open offer, the mortgage lender said in an exchange filing. The cause of the deal termination is said to be caused by delays in pending legal proceedings. Had the deal gone through, the Carlyle Group would have held close to 50% in PNB Housing Finance, helping to ease concerns about capital availability and growth.

In May 2021, investors led by Carlyle announced an investment of Rs 4,000 crore in PNB Housing. The investment by Carlyle was crucial for PNB Housing because it came at a time when the mortgage lenders financials were hit by liquidity crunch that hit NBFCs following the collapse of Infrastructure Leasing and Financial Services Ltd (IL&FS) in September 2018 and then followed by the pandemic.

However, the transaction soon came under the scrutiny of the Securities and Exchange Board of India (SEBI) after the Stakeholders Empowerment Services (SES) termed the deal ‘unfair and abusive’ to the minority shareholders. The market regulator halted the stake sale and asked PNB Housing Finance to conduct an independent valuation before pricing any capital-raising deal.

PNB Housing Finance challenged the regulators directive at Securities Appellate Tribunal (SAT), which allowed the company to seek shareholders approval. This was followed by SEBI approaching the Supreme Court after SAT delivered a split verdict.

With the eventual cancellation of the deal, the mortgage lender will have to look at other funding sources to support growth. The company has been looking to raise funds over the past few years however, the Reserve Bank of India (RBI) barred parent Punjab National Bank from infusing capital into its housing finance subsidiary.

In the early trading session on Monday, the stock of PNB Housing Finance was locked in its lower circuit of 5%. The trading was suspended at Rs 607.10 per share, down by 5% or Rs 31.95 on the BSE. The stock’s 52-week high is Rs 924 and the 52-week low is Rs 315.85 on BSE.