PNB Housing Finance Linkages with the Parent Remains Strong

PNB Housing Finance's (PNBHFL; 'IND AAA'/Stable) linkages with its parent Punjab National Bank (PNB; 'IND AAA'/Stable) is likely to remain strong even post the initial public offer, says India Ratings and Research (Ind-Ra). The current rating of PNBHFL reflects Ind-Ra's expectation of continued support from PNB.

PNBHF is planning to raise INR30bn through an IPO, the proceeds of which will be used to support its growth plans. Post the planned issuance, PNB's stake in the company would settle at around 37%-39% from 51%. Ind-Ra expects the reduced shareholding will not materially alter the strong linkages between PNB and PNBHFL.

PNB housing shares its brand name with the bank and the latter has management control as well. PNB has the authority to appoint the MD for the company and the majority of the executive directors of PNBHFL are deputed from the bank. These linkages are expected to continue post the IPO. PNB will continue to remain the single largest shareholder over the medium term.

PNBHFL offers PNB a strong foothold in the fast expanding housing finance segment which is complementarity to their respective customer segments. PNBHFL's loan book grew at a CAGR of 60% over FY13-FY16, while its profit after tax grew at a CAGR of 53% over the same period.

Ind-Ra will take appropriate action on the rating/outlook in case of a shift in PNB's willingness to support PNBHFL (e.g. by way of equity/funding/liquidity/branding). Any announcement of a significant stake sale by PNB, to the extent that it ceases to remain PNBHFL's largest shareholder and/or relinquishes control can also trigger a negative rating action on PNBHFL. A negative rating action can also result from a substantial weakening of PNBHFL's credit profile.

Powered by Capital Market - Live News