No error of judgment in PNB Housing-Carlyle deal: PNB MD Mallikarjuna Rao

Subsequent rise in share prices of the mortgage lender post the announcement could not have been anticipated, he asserts

There was no error of judgment while finalising the fundraising plan for PNB Housing Finance (PNBHFL), and the subsequent rise in share prices of the mortgage lender post the announcement could not have been anticipated, PNB MD CH S S Mallikarjuna Rao said.

“If you have seen the share price of PNB Housing Finance in the last 2-2.5 years, it was hovering at below rate. ICDR guidelines clearly indicate for the listed companies the kind of formula to be used for pricing. As on the date of taking a decision, it would never have been thought by anyone that the price would increase so high in the subsequent days based on the decision taken by the company,” Rao spoke about the deal for the first time during Punjab National Bank’s earnings press conference.

Rao said when the mortgage lender consulted law firms, there was an opinion that the Securities and Exchange Board of India’s (Sebi) Issue of Capital and Disclosure Requirements (ICDR) regulations prevail over the company’s articles of associations (AoA).

PNB has not changed its stance on the PNBHFL deal or acted opposite of what was planned earlier, Rao said. On June 18, there was a directive given by Sebi to PNBHFL, and the housing lender wanted clarity whether voting on the plan can continue as it had already started on the same morning the regulator’s directive was received.

The mortgage lender then moved the Securities Appellate Tribunal (SAT), and the tribunal gave an interim judgment to continue the voting. However on June 25, SEBI sent letters to all directors of PNBHFL.

“As the nominee director of PNB, when a communication is received, I am required to submit it to PNB Board. Then the PNB board wanted another legal opinion. Based on the legal opinion, the board was informed that whatever is mentioned in PNBHFL AoAs may not be conflicting with ICDR guidelines,” Rao said.

This was discussed by the PNB board and PNBHFL was informed to follow the SEBI guidelines, he said.

“It is not going diametrically opposite of what we have done. We have only told them that SEBI communication may be looked into in terms of reconstruction of the process,” Rao said.

PNB had advised its housing finance arm to restructure its fundraising deal with investors in accordance with the SEBI’s directive. However, PNBHFL had decided to wait for the SAT’s order.

Different legal interpretations will have to be put to rest by SAT’s judgment. “We await the judgment by SAT and we will be following that in letter and spirit,” he said.

Based on judgment, if needed, other options for raising funds will be searched.

“There is good demand for PNBHFL for housing lending and containing asset quality. However, things have changed in last one and a half years. Currently market looks buoyant as many public sector banks have gone for QIP in last 6 months. So situation is different, we will wait for the judgment of SAT and take a call in the interest of PNBHFL,” he said.

Answering a query on an alleged link of PNBHFL board members with the Carlyle Group leading to a conflict of interest, Rao said the members are reputed people in their own fields. “If there is any incidental linkage of them having been a director of any company we should not be discounting the quality and capability of those people. And there’s no matter of conflict of interest. They are all professionals...and I’d like to assure board members are very reputed,” he said.