PNB Housing Finance: The (Missing?) Registered Valuer Report

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On June 15, we had written about a proposed preferential issue by PNB Housing Finance to certain entities belonging to The Carlyle Group, General Atlantic, Ares SSG, and Salisbury Investments (a company controlled by Aditya Puri, the former CEO of HDFC Bank).

A proxy advisor issued a report asking public shareholders to vote against the proposed investment. The report argued that the price at which Carlyle will be investing in the company belied the company’s true value. As an alternative to a preferential issue, the report suggested that the company should have considered a ‘rights issue’ in which all shareholders will be entitled to participate.

In our previous article, we considered a ‘rights issue’ and a ‘preferential issue’ from the perspective of certainty in funding, disclosure obligations, approvals and timelines, and pricing.

The debate has since focused on whether the proposed preferential issue required a report of a registered valuer and whether such a report was in fact procured. On June 18, the SEBI issued a letter to PNB Housing Finance stating that the proposed resolution for shareholder approval of the preferential issue is ultra vires the articles of association of PNB Housing Finance, and should not be acted upon until PNB Housing Finance undertakes the valuation of shares as prescribed under Article 19(2) “from an independent registered valuer as per the provisions of applicable laws”. On an appeal filed by PNB Housing Finance to the SAT, the SAT held, in an interim order, that since electronic voting had already commenced, it would not be fair to stay the shareholder vote. Accordingly, it permitted the shareholder vote to go ahead but ordered that the results not be disclosed and kept in a sealed cover.

The matter is now listed before the SAT for final disposal on July 12.

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