Carlyle picks up Destimoney's 49% stake in PNB Housing Finance

Deal seen as boost for PSU banks looking to unlock value in non-core assets

US-based private equity firm Carlyle Group beat off stiff competition to acquire a 49 per cent stake in PNB Housing Finance from Destimoney Enterprises Private Ltd (DEPL).

The non-banking finance company (NBFC) was valued at around $500 million, sources said. HDFC Bank advised Carlyle for the deal, while Morgan Stanley was the advisor to New Silk Route (NSR). The transaction was concluded last week.

PNB Housing Finance is the mortgage finance arm of one of India’s largest public sector lenders, Punjab National Bank, which owns 51 per cent, and is the fourth largest housing finance company in the country.

DEPL, which is involved in the financial sector in India and Asia, is a subsidiary of NSR-controlled Destimoney Enterprises (DEL). NSR was earlier promoted by former McKinsey & Co head Rajat Gupta, who was later convicted on insider trading charges.

Several PE firms, including GIC-Chrys Capital combine, Actis and General Atlantic, were reportedly in talks with NSR to pick up a stake in what turned out to be the largest transaction in the housing finance space.

Carlyle will enjoy the same rights in terms of representation in the board that Destimoney had.

The deal is a part of Carlyle group acquisition of DEPL from DEL, which was executed via Quality Investment Holdings. The Competition Commission of India (CCI) recently gave its green signal to Quality’s acquisition of DEL.

The deal comes as a positive development for public-sector banks that are looking to sell part of their non-core assets to strengthen their capital position at a time when the government is infusing capital only in public sector banks that have shown better efficiency.

There are previous instances where stake-sale process of public-sector banks could not go through owing to various reasons - for example, IDBI Bank’s proposal to sell its housing finance arm and Bank of Baroda’s plan to sell a part of its stake in its credit card venture BOB Cards.

PNB Housing Finance’s profits grew 58 per cent to Rs 139 crore in the nine months ended September 2014, compared to Rs 88 crore during the year-ago period. PNB Housing Finance, which provides loans to purchase and construct residential premises, had a loan portfolio of Rs 15,267 crore as of December 2014, which grew by 62 per cent on a year-on-year basis.

The lender has kept its asset quality under check; its net non-performing asset (NPA) to net advances was 0.11 per cent as of December-end, while its gross NPA was 0.25 per cent.

In December 2009, PNB has sold 26 per cent stake in PNB Housing Finance to Destimoney for Rs 79.17 crore.

The bank has sold 7.8 million shares of the company at Rs 101.5 each. According to the plan, Destimoney infused an additional Rs 137 crore to PNB Housing Finance, increasing its stake to 49 per cent, while PNB will retain its majority at 51 per cent. The total size of the deal with Destimoney was estimated at Rs 217 crore.