Can you be someone’s hero and villain at the same time? Private equity biggie The Carlyle Group finds itself in this pickle. The stock market cheered its recent plan to infuse funds into PNB Housing Finance Ltd (PNBHFL). But the deal has also been called unfair to small shareholders.

The trouble began in May 2021, when the PNBHFL board decided to raise Rs 4,000 crore (~$537 million) by allotting shares in a preferential allotment preferential allotment preferential allotment Preferential allotment is the issue of shares or securities by companies to a select group of investors to some existing investors, including Carlyle. Carlyle was already a major shareholder, owning around 32% stake in PNBHFL.

India’s second-largest public sector bank, Punjab National Bank—which held another 33%—was not participating. The fundraise was to be split into equity worth Rs 3,200 crore (~$430 million) and warrants warrants warrants Equity warrants give the holder of the instrument the right to buy a company's stock at a specific price within a specific date. A portion of the money may have to to be paid upfront worth Rs 800 crore (~$107 million).

The move, however, ran into a wall after proxy advisory firm Stakeholders Empowerment Services (SES) red flagged red flagged SES Proxy Advisory Report - PNB Housing Finance Read more several issues, including how the funds were supposed to be raised, the way the shares were priced, and minority shareholder abuse. PNBHFL has defended defended BSE PNB Housing Finance response Read more the deal, and its promoter PNB and the government are circling the wagons circling the wagons Business Standard PNB Housing Finance board followed all due processes: Finance Ministry Read more . Meanwhile, the PNBHFL stock has been on a roller-coaster run.

India’s Securities Appellate Tribunal (SAT), which hears grievances against orders passed by market regulator, Securities and Exchange Board of India (Sebi), is all set to hear the case today—5 July. How it plays out will have far-reaching implications, including on the way Indian businesses raise funds.

The optics aren’t good for the big names involved. The dominant narrative is that PNB, Carlyle, and a couple of other big existing investors, with their 85% shareholding, banded together in a sweetheart deal. The preferential allotment left out small investors, who hold a ~15% share in the company.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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