Private lender Bandhan Bank joins the fray to buy PNB Housing Finance

Kolkata based private sector lender Bandhan Bank is the latest to join the fray to acquire a controlling stake in PNB Housing Finance Limited. According to two persons aware of the development, Bandhan will submit the Expression of Interest (EoI) for PNB Housing Finance soon.
Bandhan has reached out to a few sovereign wealth funds (SWFs) and global financial institutions like GIC of Singapore with the prospect of forming a consortium. Singapore’s investment company GIC is also exploring a similar PE led consortium backed by Balckstone and may soon choose between backing either a strategic group or a fund lend alliance. It is also expected that Bandhan will make a stock offer or a combination of cash and stock as against a pure cash bid, said sources in the know.

The lender has already had preliminary management meetings with the PNB Housing top brass led by MD, Sanjaya Gupta. Goldman Sachs is believed to be its advisor.

The potential PNB Housing buyout will make sense for Bandhan as the newly listed bank will get a good mortgage portfolio without having to spend time building it. But more importantly, it could help Bandhan Financial Holdings reduce its stake in the bank closer to RBI norms, said one of the official mentioned above on condition of anonymity as the talks are still in private domain.

The bank has to reduce its promoter stake to 40% within three years of starting its business according to RBI's licensing norms. Though Bandhan will complete three years at the end of this month, it is far away from the RBI target. Bandhan Financial Holdings currently owns 82.8% shares in the bank.

When contacted, Bandhan Bank founder and CEO Chandra Shekhar Ghosh said he has no comments to offer at this stage.

The current market capitalization of Bandhan Bank, is Rs.81,772 crore, making it the 8th largest bank in India in terms of market capitalisation after HDFC, SBI, Kotak Mahindra, ICICI Bank, Axis, IndusInd and Yes Bank.

The bank's loan book has grown from Rs.15,578.4 crore as of FY16 to Rs.32,340 crore as of FY18 while customer base has increased to 1.3 crore in 33 states. Micro credit forms 86% of loan book while retail, SME together are still small. As of FY18, Bandhan Bank 936 bank branches and 430 ATMs, together serving over 25 lakh general banking customers.

Bandhan MFI was one of the few institutions to sail through the AndhraPradesh crisis, demonetisation, farm loan waivers and has demonstrated growth at 90% CAGR in those 10 years, said a recent ICICI Direct report. Even in the last five years, advances grew at 51% CAGR. Micro credit forms 86% of loan book while retail, SME together are still small.

PNB Housing’s key shareholders Punjab National Bank (PNB) along with US private equity firm Carlyle corners 66% of the company. The public sector lender has been under stress due to high non performing assets (NPAs), aggravated further after the Nirav Modi fraud in which Rs 14,500 crore guarantees issued by the bank were used to borrow from banks abroad.

PNB Housing is non core business for the bank and it has hired Credit Suisse to find a buyer for its stake sale. Morgan Stanley is advising US PE firm Carlyle. The plan is to sell as majority stake which is 51% ultimately leading to an open offer which means both promoters will cede control of PNB Housing. Almost all big names in Indian financial services are interested because it is a well running portfolio that has become the 2nd largest deposit taking NBFC in the country.

Besides Bandhan, other strategic buyers who are interested in PNB Housing Finance are Kotak Mahindra Bank, Fullerton, Aditya Birla Capital, Indiabulls Housing Finance and Hero FinCorp while private equity investors which have evinced interest are Blackstone, KKR, Bain Capital, Apax Partners, Temasek and CPPIB among others.

All EoIs have to be submitted by this week and players will be shortlisted in a month's time for non-binding bids. The market cap of PNB Housing comes at Rs.23,394 crore, a sharp rise since its Rs 3,000 cr IPO in November 2016. Its disbursements have grown at a 52% compound annual growth rate over the last four years. Its net non-performing loans were at 0.25%. Carlyle sold a 4.8 stake for around Rs 1,040 crore on May 8th, through block deals, valuing the housing finance company at Rs 21,667 crore.

PNB Housing Finance, with 84 branches across the the country, had assets under management of Rs 62,252 crore at the end of March 31, 2018.

General Atlantic, the US private equity investor and the third-largest shareholder in PNB Home Finance, has shown interest in investing an additional $300 million to $500 million to raise its stake to beyond 10% in the company in the process, ET reported earlier. The General Atlantic Singapore Fund had raised its stake in the company in November 2017 to around 10% by purchasing shares from Carlyle.

Carlyle invested Rs.1,600 crore in PNB Housing in 2015 for a 49% stake in the then unlisted company. It now owns a 33% stake, having recently sold about 5% in the open market.