Red flags as PNB stake in housing finance subsidiary might dip under 26%

QUESTIONS are prone to be raised on the shareholders’ assembly of Punjab National Bank Housing Finance (PNBHF) later this month over the potential for Punjab National Bank (PNB) shedding its dominant shareholder standing within the firm. And into the circumstances of final week’s Rs 4000-crore funding in PNBHF introduced by a consortium of buyers, led by US personal fairness large The Carlyle Group and former HDFC Bank Ltd chief government Aditya Puri.
The capital infusion will make Carlyle the most important shareholder in PNB Housing. This even if each the federal government and PNBHF publicly dedicated to making sure that PNB maintains a 26% stake.
Shares of PNBHF have doubled during the last six days at the same time as a report ready by Stakeholders’ Empowerment Services, a number one “proxy advisory firm” to guard minority shareholder pursuits, has known as the PNBHF board decision on preferential situation of fairness shares and warrants to the consortium as “unfair transaction, against public shareholders and PNB”.
It has additionally known as the transaction “ultra vires” of the Articles of Association.
The desire share allotment by PNB Housing Finance to Pluto Investments, a Carlyle affiliate (it’s going to subscribe to 80% of the shares issued) and Puri’s Salisbury Investments, together with two different present overseas buyers, will depart PNB with simply 20.3% stake within the housing finance main.
This means it won’t solely lose its dominant shareholder standing but in addition its veto energy on the board of the corporate. The Carlyle Group will see its stake rising to above 50 per cent.

On the pricing of the desire share at Rs 390, PNBHF, the report stated, ignored its Articles of Association which requires the worth to be “determined by the valuation of a registered valuer”. Given that the ebook worth of PNBHF share is Rs 540, that will have pegged it at a extra practical degree, consultants stated, because it provides indication of intrinsic worth.
Instead, the corporate glided by SEBI guidelines on pricing below which it’s primarily based on both 12-week or two-week highs.
As of now, PNB’s shareholding in PNBHF stands at 32.64% and that of the Quality Investment Holdings (a Carlyle entity) stands at 32.21%.
However, put up the allotment of shares, PNB’s holding is ready to go down to twenty.3% and that of QIH to twenty%. Together with Pluto’s holding of 30.1%, each Carlyle entities will, collectively, maintain over 50% within the firm.
A dip in holding under 26 per cent won’t solely weaken PNBs stature on board however will even take away its Veto Power, which sources say can be of concern to the federal government.
In 2019-20, when PNBHF was seeking to increase capital, the federal government had maintained that PNB’s shareholding shouldn’t go under 26%.The promoter, PNB, additionally appears to have gone again on its dedication of holding a minimum of 26% stake in PNBHF.
In a press release on January 23, 2020, PNBHF stated, “PNB will maintain a minimum shareholding in PNB Housing at 26%. Further, PNB has confirmed that its stated objective is to continue to hold a minimum 26% shareholding in the Company and continue to be the promoter of the Company.”

Asked about dilution of PNB’s stake and pricing of the share, PNBHF stated: “As a responsible company, PNB HFC has consistently striven for sound business practices along with excellent corporate governance…..This deal for capital raising has been arrived at with appropriate due diligence keeping best interests of all stakeholders in mind. We are confident this will take the company forward to its deserving success and growth and expected to unlock value for all the stakeholders including minority and retail investors.”
Emails despatched to Punjab National Bank and The Carlyle Group went unanswered.