{"id":114279,"date":"2021-06-23T13:40:41","date_gmt":"2021-06-23T08:10:41","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=114279"},"modified":"2021-06-23T13:40:41","modified_gmt":"2021-06-23T08:10:41","slug":"preferential-treatment","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/preferential-treatment\/","title":{"rendered":"Preferential Treatment"},"content":{"rendered":"\n<p><b><span data-contrast=\"none\">Context:\u00a0<\/span><\/b><span data-contrast=\"none\">PNB Housing has filed an appeal before the Securities Appellate Tribunal (SAT) against a letter issued to it by the Securities and Exchange Board of India (SEBI).<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"46\" aria-setsize=\"-1\" data-aria-posinset=\"154\" data-aria-level=\"1\"><span data-contrast=\"none\">SEBI had asked PNB Housing to keep its resolution\u00a0<\/span><i><span data-contrast=\"none\">(for the preferential issue of equity shares and\u00a0warrants\u00a0to the\u00a0Carlyle Group\u00a0and others)<\/span><\/i><span data-contrast=\"none\">\u00a0<\/span><b><span data-contrast=\"none\">on hold<\/span><\/b><span data-contrast=\"none\">\u00a0until valuation of the shares is carried out by an independent registered valuer.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"46\" aria-setsize=\"-1\" data-aria-posinset=\"155\" data-aria-level=\"1\"><span data-contrast=\"none\">SEBI\u2019s letter came after Stakeholders\u2019 Empowerment Services (SES), a proxy advisory firm,\u00a0<\/span><b><span data-contrast=\"none\">raised questions over the proposed transaction,<\/span><\/b><span data-contrast=\"none\">\u00a0terming it\u00a0<\/span><b><span data-contrast=\"none\">\u201cunfair\u201d<\/span><\/b><span data-contrast=\"none\">\u00a0to the interests of minority shareholders.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">What is exactly the matter and why its relevant to\u00a0<a href=\"https:\/\/forumias.com\/blog\/upsc-syllabus\/\">UPSC\u00a0syllabus<\/a>?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">Matter involves the issue of Rs 4,000 crore<\/span><b><span data-contrast=\"none\">\u00a0<\/span><\/b><b><span data-contrast=\"none\">preference shares<\/span><\/b><span data-contrast=\"none\">\u00a0to a group of investors led by the\u00a0Carlyle Group.\u00a0With this transaction, the group\u2019s shareholding in PNB Housing would rise to over 50%, giving it the controlling stake.\u00a0This raises questions about conflict of interest, and protection of minority rights, which lie at the heart of corporate governance structures.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"48\" aria-setsize=\"-1\" data-aria-posinset=\"156\" data-aria-level=\"1\"><span data-contrast=\"none\">Corporate governance\u00a0is an important topic in\u00a0GS\u00a0IV Ethics paper.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">What are the concerns\u00a0being\u00a0raised?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">Two concerns are being voiced:\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"157\" data-aria-level=\"1\"><b><span data-contrast=\"none\">The decision to opt for a preferential issue<\/span><\/b><span data-contrast=\"none\">: A company can issue two types of shares, that is,\u00a0equity shares and Preference shares.\u00a0Consequently, there are two types of issues: Preferential issue and rights issue.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"18\" data-aria-level=\"2\"><span data-contrast=\"none\">In a\u00a0<\/span><b><span data-contrast=\"none\">rights issue,<\/span><\/b><span data-contrast=\"none\">\u00a0all shareholders are entitled to\u00a0participate.\u00a0This\u00a0allows for equal treatment of shareholders.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"19\" data-aria-level=\"2\"><b><span data-contrast=\"none\">Preferential issue<\/span><\/b><span data-contrast=\"none\">\u00a0is not open to all shareholders.\u00a0Only specified group of people can\u00a0participate.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"158\" data-aria-level=\"1\"><b><span data-contrast=\"none\">The pricing of the preferential shares:\u00a0<\/span><\/b><span data-contrast=\"none\">On the issue of pricing,\u00a0argument has been made\u00a0that the\u00a0valuation exercise was carried out without accounting for the \u201ccontrol premium\u201d,\u00a0implying that the shares should have been priced higher.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"20\" data-aria-level=\"2\"><b><span data-contrast=\"none\">What is Control Premium?\u00a0<\/span><\/b><span data-contrast=\"none\">&#8211; Control premium\u00a0is an amount that a buyer is sometimes willing to pay over the current market price of a publicly traded company\u00a0in order to\u00a0<\/span><b><span data-contrast=\"none\">acquire\u00a0a controlling share<\/span><\/b><span data-contrast=\"none\">\u00a0in that company.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"o\" data-font=\"Courier New\" data-listid=\"49\" aria-setsize=\"-1\" data-aria-posinset=\"21\" data-aria-level=\"2\"><span data-contrast=\"none\">Hence, in this case the\u00a0argument is straightforward:\u00a0As the transaction\u00a0involved\u00a0changes the nature of the company \u2014 effectively transforming it to a privately controlled entity, this event needs to be priced in.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"none\">Other concerns<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Several other\u00a0concerns\u00a0have also been raised, like\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"50\" aria-setsize=\"-1\" data-aria-posinset=\"159\" data-aria-level=\"1\"><span data-contrast=\"none\">12 PNB Housing Finance board members who approved the transaction, seven, including the independent directors, had dealings with the\u00a0Carlyle Group. This\u00a0raises\u00a0questions of conflicts of interest.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">What is the response of PNB Housing?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">PNB Housing Finance has<\/span><b><span data-contrast=\"none\">\u00a0refuted the allegations<\/span><\/b><span data-contrast=\"none\">, and has clarified that the process followed to\u00a0determine\u00a0the pricing of shares was in line with the\u00a0<\/span><b><span data-contrast=\"none\">\u201cmarket practice\u201d<\/span><\/b><span data-contrast=\"none\">\u00a0by listed companies.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">What is going to happen now?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">While SAT has allowed for a vote on the issue, and the matter will be taken up on July 5.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">Terms to know<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"51\" aria-setsize=\"-1\" data-aria-posinset=\"160\" data-aria-level=\"1\"><span data-contrast=\"none\">Equity shares<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"51\" aria-setsize=\"-1\" data-aria-posinset=\"161\" data-aria-level=\"1\"><span data-contrast=\"none\">Preference shares<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"51\" aria-setsize=\"-1\" data-aria-posinset=\"162\" data-aria-level=\"1\"><span data-contrast=\"none\">Corporate governance<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559737&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"none\">Source<\/span><\/b><span data-contrast=\"none\">:\u00a0<\/span><a href=\"https:\/\/indianexpress.com\/article\/opinion\/editorials\/preferential-treatment-7369638\/\"><span data-contrast=\"none\">Indian Express<\/span><\/a><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context:\u00a0PNB Housing has filed an appeal before the Securities Appellate Tribunal (SAT) against a letter issued to it by the Securities and Exchange Board of India (SEBI).\u00a0 SEBI had asked PNB Housing to keep its resolution\u00a0(for the preferential issue of equity shares and\u00a0warrants\u00a0to the\u00a0Carlyle Group\u00a0and others)\u00a0on hold\u00a0until valuation of the shares is carried out by&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/preferential-treatment\/\">Continue reading <span class=\"screen-reader-text\">Preferential Treatment<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,8043,9],"tags":[],"class_list":["post-114279","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-current-affairs-cat","category-public","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700467547},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=114279"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114279\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=114279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=114279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=114279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}