PNB Housing Finance board members today approved a fundraising of about Rs 4,000 crore. There are two leading investors – Former HDFC Bank CEO Aditya Puri and US-based private equity firm The Carlyle Group.

Once the fundraising is complete, these two investors will become the new promoters of the company. However, the original government-owned Punjab National Bank (PNB) will continue to remain so with its current stake of 32%.

Once the company filed the plans with the exchanges, the investors were overjoyed and their aggressive buying made the share price rise by 20% and hit the upper circuit.

From the company’s exchange filing, the US-based private equity giant Carlyle Group is the major contributor with 80% of the about 4,000 crore capital raise.

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The other major fundraiser is Aditya Puri who will participate via Salisbury Investments. He has had the honour of leading the largest private sector bank of India, HDFC bank. The bank also owns the largest private mortgage lender of the nation, HDFC.

This capital infusion is for the primary objectives of augmenting capital adequacy, reducing the total debt-to-equity ratio and to fund the growth aims of the company in the retail lending industry.

The equity issue is priced at Rs 390/- per share which about three-fourths of today’s closing price of Rs 525.65 on NSE.

To comply with the regulations, the decision triggered an open offer. SEBI clarifies that an open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price.

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In the case of PNB Housing Finance, 26% of the company’s existing equity or about 7 crore shares are bid at Rs 403/22 per share, which is at a discount of 23% to today’s closing price.

It must be reminded that the fundraising which the company has decided and is subject to the approval of shareholders was overdue. Back in November 2020, the company wanted to raise Rs 1,800 crore but was not able to do so since the parent company PNB was not permitted by the Reserve Bank of India (RBI) to infuse the capital.

Then, recently in an analyst call in April 2021, the company claimed that it was evaluating its options for the same.

Even though, the investors are cheering the development as clearly demonstrated by aggressive buying that has exhausted all the willing supply in the market, still, technically, preferential allotment reduces the ownership per share and thus there is no point in rewarding this decision of the company with buying.

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In simpler terms, preferential allotment is like cutting a pizza into more slices and everyone’s slice will be cut into smaller parts for no fault of theirs.

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