PNB Housing Finance board members today approved a fundraisingof about Rs 4,000 crore. There are two leading investors – Former HDFC Bank CEOAditya Puri and US-based private equity firm The Carlyle Group.
Once the fundraising is complete, these two investors willbecome the new promoters of the company. However, the original government-ownedPunjab National Bank (PNB) will continue to remain so with its current stake of32%.
Once the company filed the plans with the exchanges, theinvestors were overjoyed and their aggressive buying made the share price riseby 20% and hit the upper circuit.
From the company’s exchange filing, the US-based privateequity giant Carlyle Group is the major contributor with 80% of the about 4,000crore capital raise.
The other major fundraiser is Aditya Puri who willparticipate via Salisbury Investments. He has had the honour of leading thelargest private sector bank of India, HDFC bank. The bank also owns the largestprivate mortgage lender of the nation, HDFC.
This capital infusion is for the primary objectives of augmentingcapital adequacy, reducing the total debt-to-equity ratio and to fund thegrowth aims of the company in the retail lending industry.
The equity issue is priced at Rs 390/- per share which aboutthree-fourths of today’s closing price of Rs 525.65 on NSE.
To comply with the regulations, the decision triggered anopen offer. SEBIclarifies that an open offer is an offer made by the acquirer to theshareholders of the target company inviting them to tender their shares in thetarget company at a particular price.
In the case of PNB Housing Finance, 26% of the company’sexisting equity or about 7 crore shares are bid at Rs 403/22 per share, which isat a discount of 23% to today’s closing price.
It must be reminded that the fundraising which the companyhas decided and is subject to the approval of shareholders was overdue. Back inNovember 2020, the company wanted to raise Rs 1,800 crore but was not able todo so since the parent company PNB was not permitted by the Reserve Bank ofIndia (RBI) to infuse the capital.
Then, recently in an analyst call in April 2021, the companyclaimed that it was evaluating its options for the same.
Even though, the investors are cheering the development asclearly demonstrated by aggressive buying that has exhausted all the willingsupply in the market, still, technically, preferential allotment reduces theownership per share and thus there is no point in rewarding this decision ofthe company with buying.
In simpler terms, preferential allotment is like cutting apizza into more slices and everyone’s slice will be cut into smaller parts forno fault of theirs.