Announcement: Lorem ipsum dolor sit amet, consectetur adipiscing elit. Donec et quam blandit odio sodales pharetra.
PNB intervention should finally find a solution to the Carlyle deadlock
On 31 May, PNB Housing announced a deal to raise Rs.4,000 crore from Carlyle PE, which would provide the required fund infusion and cushion its capital. But, the deal ran into trouble and we now await the final verdict from the SAT on the status of the deal. What could really make a difference to the deal is PNB writing to PNB Housing asking to address the points raised by SEBI.
Written By Shashank Gupta
Table of Content
Why the deal was flawed?
At the outset, it did look like a win-win deal for all. Carlyle will get a valuable property at a reasonable price, PNB will not have to infuse funds and it will also reduce its stake and PNB Housing will get the much-needed capital. Of course, the investors will get good value as was evident from the share price doubling. The bonus was that Aditya Puri will come on board to drive the business at PNB Housing, ideally with the same fervor as he did at the HDFC Bank. However, SEBI had second thoughts on the deal after proxy firms objected to the deal on the grounds of propriety of not doing a rights issue, underpricing a state-owned asset and not collecting control premium from Carlyle. All these were extremely valid points and it also induced SEBI to write to PNB Housing asking for independent valuation of the business. This is the bone of contention and the SAT judgment on 12 July will precisely address this issue. Eventually, the PNB note may make the difference.
Why the PNB letter matters
A day ahead of the SAT order, that was originally scheduled on 05 July, PNB wrote to PNB Housing asking them to abide by the SEBI suggestion for an independent valuation. More than any other ruling, it is this letter that could make the difference. After all, even now PNB holds over 32% stake and is a very significant shareholder in PNB Housing. The HFC also owes its identity and its brand positioning to PNB and that cant be wished away. Post the deal, the PNB stake would fall to 20% and Carlyle will hold more than 50%. But, for now, PNB Housing may have no choice but to fall in line and go by the SEBI suggestion.
It is all about pricing
The issue is not so much about the wisdom of bringing in Carlyle as a PE investor. Frankly, there is not much of a choice if PNB Housing needs to cushion its capital. However, the real issue to resolve is the pricing. The proxy firm is absolutely right that Carlyle has neither considered the undervaluation of PSUs nor the need to pay a control premium. These are part of global best practices and the independent valuation that has been suggested by SEBI will allow the buyer and the seller to arrive at a much better price that is logical and also fair to both the parties. With PNB writing the letter, it is clear that PNB wants a more rational middle-path. That should trigger a speedy resolution now!