Sitting on 3X, Carlyle eyes more in PNB arm
By N Sundaresha Subramanian | New Delhi | 27 Oct 2016 00:10 am
Sitting on 3X, Carlyle eyes more in PNB arm
Private equity giant Carlyle group has seen its investment in PNB Housing Finance treble in value in a span of 20 months. That is not all. The mortgage lender''s Rs 3,000-crore initial public offering (IPO), which closes on Thursday, is likely to open up new possibilities to augment and unlock value. But, conditions apply.
PNB Housing is promoted by state-owned Punjab National Bank (PNB), which currently holds 51 per cent. Destimoney Enterprises (DEL, the second largest shareholder owning 49 per cent) is held through a multi-layered structure. While Mauritius-based Quality Investments Holdings (QIH) owns Destimoney, QIH itself is described as follows in the draft red herring prospectus: "Quality Investments Holdings, which is a company incorporated in Mauritius owned and controlled by CAP IV AIV Mauritius Limited, and CAP IV Coinvest AIV Mauritius Limited, which are entities incorporated in Mauritius and QIH''s nominees. These entities have investment advisory arrangements with affiliates of the Carlyle Group, LP."
CAP IV is short for Carlyle Asia Partners IV, a fund that specialises in buyouts. The Carlyle group website described the fund as follows: "Launched in 2013 at $3.9 billion, this fund conducts leveraged buyout transactions in Asia in targeted industries."
While Carlyle has said it is neither selling nor buying shares in the IPO, it would have the opportunity to take control through open market purchases. Such a move would be in line with the ''buyout'' focused philosophy of CAP IV, the ultimate owner of the stake in PNB HFC. After the mandatory lock-in period is over, there would also be an opportunity to exit by selling out to a strategic player, who might pick up a big chunk of shares in the IPO.
Sitting on 3X, Carlyle eyes more in PNB arm
However, it has to be mindful of agreements with the promoters. For example, the shareholding is linked to the licence to use the ''PNB'' brand. If PNB''s shareholding falls below 30 per cent, it would have the right to terminate this licence. Such termination could have an impact on the reputation and resources.
In an e-mail, a Carlyle spokesperson said she had no comment to offer.
Rajat Gupta-promoted New Silk Route had invested Rs 217 crore in PNB HFC through DEL in two tranches between 2009 and 2012 for the 49 per cent stake. In February 2015, these Carlyle vehicles paid for Rs 1,600 crore for DEL, valuing PNB HFC at Rs 3,200 crore. In its IPO, PNB Housing Finance is seeking a valuation of four times that number (Rs 13,000 crore) at the upper end of the price band of Rs 775 a share of its IPO.
The diluted Carlyle stake, which would fall to 37 per cent after the fresh issue of about 40 million shares, would be worth around Rs 4,800 crore - three times its original investment. The issue also opens up various possibilities for Carlyle as PNB would no longer be majority owner.
After the IPO, PNB Housing would cease to be a government company. The fresh issue would bring down the stake of promoter Punjab National Bank to 38 per cent from the current 51 per cent.
When contacted, a PNB spokesperson directed queries to PNB housing finance.
In an emailed response, a spokesperson of PNB Housing Finance said: "As per certificate given by Carlyle to the Company neither they nor any of its arms will be investing in this IPO. In terms of the SEBI ICDR guidelines, the shareholding of the existing shareholders is locked in for at least one year and 20 per cent of the promoters shareholding is locked in for three years. We are not in a position to comment on the Carlyle''s strategy on their holding in the company."
In terms of the shareholders'' agreement, both the shareholders had right to appoint two directors on the board and have their representation in the board. PNB has nominated its managing director and CEO Usha Ananthasubramanian and executive director Ram S Sangapure, while Sunil Kaul and Devinijit Singh represented Carlyle. With the company going public, the shareholders'' agreement is terminated and none of these holders has any special rights, the PNB HFC spokesperson added.
Currently, the board of the company has 10 members - two representatives each from PNB and Carlyle, five independent directors, and the managing director.
The termination of special rights would not have any immediate impact on the board composition. However, things could get interesting if a vacancy arises.
Pursuant to the shareholding agreement amendment and termination agreement, the shareholders have agreed to waive certain rights and amend certain terms of the shareholders'' agreement to facilitate the IPO process, the red herring prospectus dated October 15 said.
"Further, any shareholder whose shareholding in the company is 26 per cent or more of the paid-up equity share capital of the company has the right to nominate two directors on the board and one director on each of the committees of the board, other than the audit committee," the red herring prospectus added.
Any shareholder whose stake is between 10 per cent and 26 per cent of the paid-up equity share capital of the firm, will have the right to nominate one director on the board. However, such shareholder will not have a right to nominate any director on any of the committees of the board.
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