Carlyle Group to acquire controlling stake in PNB Housing Finance

Aditya Puri, former managing director of HDFC Bank, will also infuse capital into PNB Housing Finance through family investment firm Salisbury Investments.

Private equity firm Carlyle Group and associates will acquire a controlling stake of over 50 per cent in PNB Housing Finance by investing in the Rs 4,000 crore preferential issue of equity and warrants of the Delhi-based mortgage lender.

After the proposed transactions, expected to be completed by January 1, 2022, Carlyle will also have the right to nominate the chairperson of PNB Housing Finance (PNB HF).

This right will continue as long as it holds at least 40 per cent of the share capital on a fully diluted basis.

Pluto Investments, affiliate of Carlyle Asia Partners, will invest up to Rs 3,185 crore through a preferential allotment of equity shares and convertible warrants at Rs 390 per share, for a 30.2 per cent in PNB HF’s expanded capital.

Quality Investment Holdings (QIH), a unit of Carlyle Group, currently holds 32.21 per cent in PNB Housing Finance. After the issue of shares and warrants, QIH's stake will stand reduced to 20 per cent on the expanded equity base.

Both QIH and Pluto are part of “The Carlyle Group”, a global entity.

Together, they will hold 50.2 per cent in PNB HF.

Public sector lender Punjab National Bank (PNB) will continue to be promoter and a key stakeholder in the company.

It held a 32.65 per cent stake in the company as of March 31, 2021. Its stake will fall to 20.3 per cent in the expanded capital base.

Along with Carlyle Group, Aditya Puri, former managing director of HDFC Bank, will infuse capital into PNB Housing Finance through family investment firm Salisbury Investments.

He will be Carlyle’s nominee director in due course.

QIH, Pluto, and Salisbury Investments will be classified as part of the “promoter group” following the transactions.

Existing shareholders of the company, funds managed by Ares SSG and General Atlantic, are also participating in the capital raise.

They will pay Rs 390 per share for equity and warrant transactions.

This proposed transaction would also trigger an open offer by Pluto Investments to purchase up to 26 per cent equity shares of PNB HFC from public shareholders.

The board has approved a capital raise of up to Rs 4,000 crore.

The transaction is subject to customary regulatory approvals as well as shareholder approval, PNB HFC said in a statement filed with BSE.

In all, PNB HF will issue 102.56 million shares (including shares on warrant conversion) at Rs 390 each.

The warrants are exercisable within 18 months of the date of allotment, the housing financier said.

Amit Tandon, founder and managing director, Institutional Advisory Services (IiAS), said with the proposed transaction, Carlyle Group as the largest investor would have a decisive say in running the business and board decisions.

Assuming the capital infusion (including warrants), the capital adequacy ratio of the company will increase from 18.7 per cent (as of March 31, 2021) to over 28 per cent, the company said.

Hardayal Prasad, managing director and chief executive officer of PNB Housing Finance, said this fund raise, and Carlyle’s continued support, would help the company to benefit from the growing opportunities, including affordable housing loans and self-employed segments.

PNB Housing Finance is the fourth-largest housing finance company in India in terms of loan assets (Rs 62,255 crore as of March 31, 2021) and the second-largest in deposits (Rs 17,129 crore as of March 31, 2021).

In India alone, affiliates of Carlyle have invested more than $1.7 billion of equity in eight financial services companies as of March 31, 2021, and $3.2 billion in India overall.

On May 24, PNB and PNB HFC executed a revised trademark agreement to replace the existing deal. Under the revised pact, PNB HFC will pay a royalty to PNB for the trademark if the bank’s stake falls below 30 per cent.

It will pay a royalty that is higher of 0.2 per cent of revenue and 2 per cent of profit after tax (PAT), with the minimum being Rs 14.97 crore and the maximum Rs 30 crore.

When PNB’s shareholding in PNB Housing falls below 20 per cent, the public sector lender will have the right to terminate the revised agreement.

Following such termination, PNB Housing will get 24 months as the transition period to change its brand name.

Photograph: PTI Photo