PNB Housing Finance gains 7% after parent says to sell 51% stake; PNB shares slip by 3%

The scam-laden Punjab National Bank on Wednesday, announced that it has decided to carry out a stake sale exercise in their NBFC-arm PNB Housing Finance. Interestingly, this news turned out to be a positive factor for PNB Housing, as investors boosted the stock price so much that it gained by nearly 7%. This however, was not a good news for PNB, which was once referred the third largest state-owned bank, as investors began heavy selling in the bank’s share price. PNB has no option but to recover the nearly Rs 14,356.84 crore scam created by two jewelers Nirav Modi and Mehul Choksi. Hence, a stake sale in profit making PNB Housing is one way to stay afloat in banking system.  

At around 1155 hours, PNB Housing share price was trading at Rs 1,260.40 per piece above Rs 68.50 or 5.75% on BSE. The company has touched an intraday high of Rs 1,269.05 per piece which has helped it to gain by nearly 7%. 

On the other hand, parent PNB share price was trading at Rs 76.35 down by Rs 1.55 or 1.99% on BSE. The share price has touched an intraday low of Rs 75.85 so far in trading session, which would mean a tumble of up to 2.63% on the index. 

In a notification on stock exchanges, PNB said, “The Exchange is hereby informed that Punjab National Bank and Carlyle Group (via its investment vehicle Quality Investment Holdings) intend to jointly initiate a strategic stake sale process to offer minimum 51 % stake in PNB Housing Finance Limited. A "joint communication regarding this stake sale has been sent to the Board of Directors of PNB Housing Finance Limited vide email dated 10th July 2018.”

As on date, PNB owns 32.79% and Quality Investment Holdings owns 32.36% of the paid up equity share capital of PNB Housing. 

A fraud was detected at  Brady House, Mumbai Branch of the bank involving Nirav Modi and Mehul Choksi for their companies where through apparent connivance between these entities and few employees of the Bank, some Letters of Undertaking (LOUs)/Foreign Letter of Credit (FLCs) were issued fraudulently and in unauthorised manner to certain overseas branches of Indian banks through the misuse of SWIFT system of the Bank which was then not integrated with CBS. 

The fraud is stated around Rs 14,356.84 crore which is currently under investigation by various central investigating agencies. 

Therefore, PNB recorded provisions of up to Rs 20,353.10 crore in Q4FY18 increasing by 253.75% versus Rs 5,753.51 crore in Q4FY17. This led to net loss of Rs 13,416.91 crore compared to net profit of Rs 261.90 crore in corresponding period of previous year. 

Gross NPAs were at Rs 86,620.05 crore up by 56.43% from Rs 55,370.45 crore in Q4FY17 and higher by 50.59% as against Rs 57,519.41 crore in Q3FY18. In percentage terms, gross NPAs stood at 18.38% in Q4FY18 versus 12.53% in Q4FY17 and 12.11% in Q3FY18.