PNB Housing Fin climbs 3% as the company reveals intentions to raise money

7 March 2022
4 mins read
PNB Housing Fin climbs 3% as the company reveals intentions to raise money

PNB Housing Finance rose over 3% in early trading on Monday, despite benchmark indexes falling under the weight of rising crude oil prices, as investors hailed new initiatives to acquire cash. After a failed effort to raise Rs 4,000 crore by selling a share to Carlyle Group last year, the mortgage lender’s board of directors is expected to make a decision on raising money, perhaps via a rights issue.

PNB Housing Finance’s stock rose to a high of Rs 414.40 on the National Stock Exchange, up from previous closing of Rs 402.90. Meanwhile, the BSE Sensex and the Nifty 50 were down 3% and 2.8 percent, respectively, at 9:55 a.m.

PNB Housing Finance stated in a regulatory filing on Friday that a meeting of the Board of Directors of PNB Housing Finance Limited would be convened on March 9 to discuss capital raising alternatives, including the issuing of equity shares via acceptable ways, subject to relevant clearances.

“Pursuant to the Shares and Exchange Board of India Regulations, 2015, as amended, and the Company’s Insider Trading Policy, the trading window for dealing in the company’s securities is closed for the specified people from 5th March 2022 to 11th March 2022.”

PNB Housing Finance planned to sell a portion of its shares to a group of investors headed by private equity company Carlyle in May 2021, according to sources. However, as per insiders, the attempts were hampered by disagreements over the value of the shares being offered to investors.

Following the participation of markets regulator SEBI, the case reached the Securities Appellate Tribunal, according to sources, which also said that the business scrapped the bid to raise Rs 4,000 crore in October last year due to the legal struggle.

Using Capital to Fund Operations

A lot of money is required to run a firm. Human and labor capital, as well as economic capital, are all examples of capital. However, most people’s initial thought when they hear the word financial capital is generally money.

That isn’t always the case. Assets, securities, and, yes, cash, are all examples of financial capital. Having cash on hand might be the difference between a company growing or sitting put and getting left behind. Debt and equity are the two forms of money that a corporation might utilize to support its operations. Determining the most cost-effective loan and equity combination is an important part of a prudent corporate finance strategy.

Why do businesses need to raise funds?

Acquisition, rebalancing the capital mix, and expansion are the three main reasons why companies seek cash from investors.

  • Acquisition – Raising funds for acquisitions is a typical method used by businesses to increase shareholder value. This technique enables organizations to use capital to either increase the value of an existing asset or to buy an external asset that will improve the company’s current operations. A mining corporation, for example, may collect money to finance a drilling campaign and grow its resource inventory. Alternatively, the corporation might use the cash to enhance an existing resource or operation by purchasing another deposit.
  • Bringing the Capital Mix Back into Balance – Companies may also issue money in order to rebalance their capital mix. This is typical when a company with ongoing obligations decides to utilize the revenues from a capital issue to pay down debt.
  • Growth – Additional money may be required to expand operations and/or for working capital. This is frequent for businesses that are embarking on initiatives with high upfront expenditures and lengthy implementation timetables.

Other Important Takeaways

Debt or equity financing may be used to obtain funds for a business. Borrowing money from a bank or other lender or issuing company bonds are both examples of debt financing. The loan must be paid back in full, plus interest, which is the cost of borrowing.

Giving away a part of a firm’s ownership to investors who buy stock in the company is known as equity financing. For public corporations, this may be done on a stock exchange, or for private enterprises, it can be done via private investors who earn a share of ownership.

Both methods of financing have advantages and disadvantages, and the best option, or combination of options, will be determined by the type of company, its present business profile, financing requirements, and financial situation.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.