Proxy advisory firm Stakeholders Empowerment Services (SES) said on Tuesday that the preferential issue offered by PNB Housing Finance is contrary to the interests of public shareholders, PNB shareholders and the government.
In a note to institutional investors, the proxy firm, run by former Sebi ED JN Gupta, argued that a rights issue would have been a fairer and better option for raising capital. SES recommended that the public shareholders of PNB Housing vote against the resolution on the preferential allocation.
“In absolute terms, existing retail shareholders are diluted 5.83%, in relative terms there is a dilution of almost 34%,” SES said.
“The shareholders holding almost 85% of the shares, either decided to make a preferential offer or voluntarily gave their rights / sacrificed (ie PNB),” SES said, adding that those controlling were unaware the existence of minority shareholders. “At first glance, SES finds this agreement unfair to the public shareholders of the company and the shareholders of PNB. As the majority shareholder of the company, PNB blew up value, ”he said in a note.
The housing financier had previously convened an extraordinary general meeting (EGM) on June 22 to approve the shareholders on the proposed capital raising. Last week, the board of directors of PNB Housing approved the preferential allocation of Rs 3,200 crore of shares and Rs 800 crore of warrants to Carlyle, the family investment vehicle of Aditya Puri Salisbury Investments, General Atlantic and Alpha Investments at Rs 390 per share.
The lender also said that Aditya Puri is likely to be appointed to the company’s board as a director appointed by Carlyle. The transaction will also trigger a public takeover bid of 26% according to Sebi standards. The open offer will be made at Rs 403 per share.
“The open offer is just a formality given the current market price. It is highly unlikely that a shareholder will contribute their shares, ”said SES. PNB Housing Finance’s share price rose 94% in one week to Rs 852.20 on the Bombay Stock Exchange (BSE).
Some experts also believe that the preferential issue of PNB Housing Finance does not harm investors.
Amit Tandon, Founder and Managing Director (MD) of Institutional Investor Advisory Services (IiAS), said: “The transaction is not detrimental to investors per se. But since the share price shot up, the structure of the deal is now in question. The share price rose as Aditya Puri, former managing director of HDFC Bank, invested and joined the board, he added.
However, SES also expressed its concerns about the dilution of personal equity after the preferential issue of PNB Housing Finance. After the capital injection, the participation of PNB will increase to 20%, while the participation of the companies of the Carlyle group will increase to 50%. Currently, PNB owns a 33% stake in PNB Housing and the Carlyle Companies owns 32% in the mortgage lender.