Speed breaker: PNB’s stake sale in housing arm gets delayed

By: | Updated: January 14, 2019 6:54 AM

The sale was part of PNB’s efforts to comply with a government directive to state-owned banks that are weighed by bad loans to sell non-core assets and improve the capital ratio.

The lender had planned to sell its stake at the earliest this fiscal.

A decline in the market cap of PNB Housing Finance in the aftermath of the IL&FS crisis and Carlyle’s exit from a plan to jointly divest equity are likely to delay Punjab National Bank’s (PNB) bid to pare its stake in the mortgage lender even beyond this fiscal, banking sources told FE.

PNB, which was hoping to garner Rs 7,000-8,000 crore by selling its entire 32.8% stake in PNB Housing Finance when bids were placed in August last year (even without a 12-15% premium it was expecting), has witnessed an erosion of its shareholding value to less than Rs 5,000 crore now. Even with a premium, it will get much less than anticipated. The lender had planned to sell its stake at the earliest this fiscal.

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A delay in stake sale could, however, mean more government capital infusion into PNB (it has already got Rs 8,247 crore from the government this fiscal) so that it can avoid featuring on the central bank’s corrective regime, apart from recording growth to tide over the $2.2-billion Nirav Modi-Mehul Choksi fraud.

The sale was part of PNB’s efforts to comply with a government directive to state-owned banks that are weighed by bad loans to sell non-core assets and improve the capital ratio.

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“Although PNB is still in talks with investors to sell its stake, it’s in a fix whether to offload at a much lower price now or wait for market conditions to turn favourable. As such, share prices of several housing finance companies have recovered in the past 1-2 months, so it makes sense if they decide to wait a bit longer,” said one of the sources. PNB officials were not immediately available for a comment.
However, PNB recently said it would “continue to pursue and proceed with an independent sale of its shareholding” in its subsidiary.

PNB and Carlyle, which together hold close to 66% in PNB Housing Finance, walked out of a planned joint sale process in November and decided to go solo. This disrupted the sale process and reduced the attractiveness of the offer, as a joint sale would have given control of PNB Housing Finance to the winning bidder, a source said.

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The share price of PNB Housing finance has lost 36% since August 28 last year, just after the non-binding bids were obtained from several suitors, as a default by IL&FS kept weighing down market sentiments and caused share prices of several non-bank lenders to plunge. Although the share price of PNB Housing Finance has recovered from its 2018 lows and there is no solvency concern, it’s still way off the peak.

Carlyle Group through its investment vehicle QIH owns 32.4% in PNB Housing Finance.
The mortgage lender is among the top five housing finance companies with assets under management of Rs 73,482 crore as on September 30, 2018. It recorded a 33% jump in the net profit to Rs 253 crore in the second quarter of the current fiscal.

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