PNB Flip-Flops On Whether It Objected To PNB Housing-Carlyle Deal

Nearly a month after it asked PNB Housing Finance Ltd.'s board to "reconsider restructuring" its fundraising plans, the chief executive of Punjab National Bank said the lender did not object to the deal struck by its subsidiary with a clutch of investors led by Carlyle.

The deal, first announced on May 31, is currently in limbo with the Securities Appellate Tribunal weighing objections raised by the market regulator to the transaction.

While speaking to reporters after the bank's first-quarter quarterly earnings announcement on Tuesday, CS Mallikarjuna Rao, chief executive officer at PNB, said the housing finance company's decision to raise Rs 4,000 crore from a clutch of investors led by private equity fund Carlyle, was within regulatory norms.

"The decision taken by PNB Housing board was within SEBI's (Securities and Exchange Board of India) guidelines. Considering the issues raised by the regulator in its June 18 letter, the PNB board had written to PNB Housing Finance's board to follow the regulator's guidance," Rao, who is also the non-executive chairman of PNB Housing Finance, said.

On June 18, the market regulator wrote a letter to the PNB Housing Finance board saying the fundraising plan was "ultra vires" to the Articles of Association of the housing finance company. According to Rao, the voting on the proposal had already commenced due to which PNB Housing Finance approached the Securities Appellate Tribunal for further guidance.

"As per SAT order the results of the vote are in a sealed envelope, where it will remain till further instructions. We await SAT's final order in the matter and will proceed accordingly," Rao told reporters.

On July 4, the PNB board wrote to PNB Housing Finance's board asking it to "reconsider restructuring the contours of the deal/transaction of the capital raising in line with such SEBI directive".

When asked what specific restructuring was sought, Rao said the bank had "merely asked the housing finance company to follow SEBI's direction and not directed any specific changes."

"The legal opinion which we had sought from a luminary indicated that there was no confusion between the Articles of Association and SEBI's pricing guidelines. So the decision taken by the PNB Housing Finance board was not without due diligence," Rao told reporters.

On May 31, PNB Housing Finance had announced a preferential issue to a clutch of investors led by Pluto Investments, an entity connected to Carlyle. The board had arrived at a price of Rs 390 per share for the purposes of the preferential allotment through a valuation process it had undertaken.

Former HDFC Bank Chief Executive Aditya Puri's family investment vehicle Salisbury Investments would also participate in the issue. Puri, also an adviser to the Carlyle Group, would join the board.

The preferential allotment had prompted proxy advisory firm Stakeholders Empowerment Services to ask investors to vote against the proposed preferential allotment. The firm raised concerns over the pricing of the allotment, saying it did not capture the intrinsic valuation of the company.

PNB holds 32.59% stake in PNB Housing Finance, which would get reduced to around 20% after the fundraising is implemented, since the bank will not infuse any capital. As a large shareholder in the housing finance company, the bank also voted on the transaction during the EGM.

When asked if the bank still backed the transaction, Rao declined further comment.

"Our vote is in the sealed envelope and will only come out when the SAT order comes. I have already discussed the events which have happened in a lot of detail, I would not like to say anything further," Rao said.