India Ratings and Research (Ind-Ra) opines that the proposed capital infusion in PNB Housing Finance (PNBHF) would strengthen its equity buffers to absorb any asset-side stress while also providing it with the capital to grow the franchisee. PNBHF had seen heightened delinquencies and a decline in asset under management in the last two years due to a challenging operating environment amid the COVID-19 pandemic.

The company has already increased the provision cover for standard as well as stage 3 assets. It also plans to increase its focus on the affordable ‘Unnati’ segment which offers a higher yield on a lower ticket size loan.

On May 31, 2021, PNBHF (‘IND AA’/Negative) announced a capital infusion plan of Rs 40 billion through a preferential issue of equity (80%) and warrants (20%), which would increase its net worth by almost 50% to over Rs 120 billion. The proposed infusion is significantly higher than earlier planned. It would be led by the Carlyle Group which holds 32.2% in PNBHF.

Post the transaction, the Carlyle Group would be the single-largest shareholder of PNBHF. The other players infusing equity would be General Atlantic Singapore (Rs 3.9 billion) and Alpha investments (fund managed by SSG Group; Rs 4 billion).

Salisbury Investments, family investment vehicle of Aditya Puri, former CEO & MD of HDFC Bank, is also stated to invest (Rs 250 million) in the capital raise. This transaction triggers an open offer by the Carlyle Group for the purchase of shares from public shareholders.

Punjab National Bank ('IND AAA'/Stable) would not participate in the capital raise and the shareholding would thus decline to below 26% from 32.64%. However, the bank has entered into an agreement with PNBHF whereby the name sharing would continue up to 20% stake and it would charge branding fees if the stake falls below 30%. Nevertheless, Ind-Ra understands PNB would remain the promoter of the company.Ind-Ra would closely monitor the developments and take a suitable rating action at an appropriate time.