SAT reserves order in ₹4,000-crore PNB HCF, Carlyle deal

Our Bureau Mumbai | Updated on July 20, 2021

The regulator objected to the deal saying that PNB HFC had not stuck to the valuation metrics

The Securities Appellate Tribunal (SAT) on Monday reserved its order in the ₹4,000-crore deal involving PNB Housing Finance Company's (HFC's) preferential allotment of shares to private equity major Carlyle and objections raised by market regulator SEBI.

The regulator objected to the deal saying that PNB HFC had not stuck to the valuation metrics per norms. In its rejoinder on Monday, SEBI said there was a fundamental fallacy in PNB HFC's arguments wherein it was overlooking the true meaning and import of Issue of Capital and Disclosure Regulations (ICDR) and its own articles of association (AOA).

PNB HFC had announced the preferential allotment of shares worth ₹4,000 crore to private equity firm Carlyle, which will also give it management control. A proxy advisory report by Mumbai-based SES had said that Carlyle was getting control of PNB HCF, which could cause a loss to minority shareholders. After this, SEBI objected to the deal. In SEBI's view, the ICD regulations lay down the floor price for the issue of shares and several preferential issues are made by listed companies over and above the price delivered as per criteria mentioned in the regulations 164. The pricing of such issues is not in violation of the regulations. On this argument, SAT said that regulation 164 also reads “higher of the following” suggesting that it was wrong to say that ICDR only provides for a minimum price.

At a fair price

The lawyers for the other parties in their rejoinder argued that the acquisition of shares by Carlyle group and other investors was at a fair price and beneficial to the interest of the company's existing investors. They further argued that PNB HFC was in dire need of funds and its single largest shareholder PNB was barred by the RBI from investing any further capital into PNB HFC. The further argument was that the investment by Carlyle group and others was perceived as positive by the market, due to which the share price of the company had appreciated considerably benefiting the existing minority shareholders. Thus SEBI's intervention in the matter was misplaced.

The lawyers further said that SEBI's mandate was only to see if its own regulations have been complied with and the preferential issue was in compliance with all the rules. Therefore, clauses in PNB HFCs AOA were repugnant when read with the provisions of Companies Act and ICD Regulations.

Published on July 19, 2021

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