PNB Housing surges 44% in 2 days on large capital infusion by Carlyle Group

The announced large equity infusion should significantly improve the confidence of fixed income and equity markets and bring PNB Housing Finance back on the growth path, Morgan Stanley said

Shares of PNB Housing Finance were locked in the upper circuit of 20 per cent for the second straight day, hitting a fresh 52-week high of Rs 630.20 on the BSE in Tuesday's trade after the company on Monday said the private equity firm Carlyle Group and associates will acquire stake by investing in the Rs 4,000 crore preferential issue of equity and warrants of the company.

Pluto Investments, an 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 Housing Finance’s expanded capital.

The capital raise is subject to regulatory and shareholders’ approvals (EGM on June 22, 2021). PNB Housing Finance will issue 82 million equity shares at Rs 390 share and will also issue 20.5  million convertible warrants at Rs 390 which will be exercisable within 18 months from the date of their allotment. For warrants, 25 per cent of the money will be payable to the company at the time of allotment of warrants and 75 per cent would be payable at the time of conversion.

Quality Investment Holdings (QIH), a unit of Carlyle Group, currently holds 32.21 per cent of 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 a 50.2 per cent stake in PNB Housing Finance.

Public sector lender Punjab National Bank (PNB) will continue to be the 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 also infuse capital into PNB Housing Finance through family investment firm Salisbury Investments. He will be Carlyle’s nominee director in due course.

The announced large equity infusion should significantly improve the confidence of fixed income and equity markets and bring PNB Housing Finance back on the growth path. We believe this capital infusion could materially accelerate the business turnaround, analysts at Morgan Stanley said in an update.

Meanwhile, brokerage Motilal Oswal Financial Services said, “With the capital adequacy issue resolved, the company would be able to deliver loan growth in line with the industry. Since the start of the COVID-19 outbreak, PNB Housing Finance also significantly strengthened its Balance Sheet – total provisions jumped around 3 times to Rs 2,500 crore. Provisions are largely adequate unless there is a severe impact of the second wave in FY22. Mr Puri joining the Board would be a positive for business strategy as well as investor confidence.” 
 

The brokerage firm added that it looks to revise its estimates post shareholder and regulatory approvals and kept the stock ‘Under Review’ from our earlier ‘Neutral’ rating.