Share pledging on the rise as promoters search for cash

DISCONCERTING RISE: Market participants say a high quantum of pledging may be a cause for concern. —FILE PHOTO

DISCONCERTING RISE: Market participants say a high quantum of pledging may be a cause for concern. —FILE PHOTO  


Total value of pledged shares is pegged at Rs.2.15 lakh crore as on August 12

Growing concern over bad debt and reduced access to bank credit has forced promoters of many companies to pledge their stake to meet the working capital requirements of their firms.

Data from BSE shows that between March and August, the number of companies with 100 per cent of the promoters' share being pledged has almost doubled from 25 to 48. Further, the number of companies with more than 90 per cent promoter shares pledged has increased from 79 to 138 in the same period.

The total value of pledged shares is pegged at Rs.2.15 lakh crore, as on August 12, as per the BSE website. The value was Rs.1.57 lakh crore as on March 15.

Promoters of listed companies often pledge their shares to raise short-term capital to fund working capital requirements. The shares are typically pledged with non-banking financial companies (NBFCs) or with banks, which lend up to a certain percentage of the value of shares that are offered to be pledged.

Market participants said that a high quantum of pledging should be looked upon as a cause for concern by investors.

Cause for concern

“For promoters, pledging is the easiest, cheapest and fastest way to raise money and should not be always looked upon as a sign of stress,” said Pranav Haldea, Managing Director, Prime Database.

“However, if the share of pledging is in the range of 50-75 per cent, then it is not very positive. It shouldn’t get to such levels,” he said. The quantum of pledging also depends on the bad debt situation of the company along with the credit rating and borrowing requirements.

If the company has a lot of debt and a low credit rating, then banks do not finance such entities. Promoters are then forced to pledge more shares with NBFCs.

According to BSE data, companies such as MSP Steel Power, Era Infra Engineering, Visa Steel, Tantia Constructions, Ind-Swift Laboratories, Gokaldas Exports, Gujarat NRE Coke, Subex, IVRCL and Nissan Copper have 100 per cent of their promoter shares pledged.

Further, companies such as Koutons Retail India, Hotel Leelaventure, Ansal Properties, Jaypee Infratech, Gammon India, Suzlon Energy, Gammon Infrastructure Projects, ABG Shipyard and Videocon Industries have promoter-pledging in the range of 90-100 per cent.

7-year high

According to Prime Database, pledging of shares by promoters in companies listed on the National Stock Exchange was at a seven-year high as on June 30.

Across all NSE-listed companies the percentage of promoter holding pledged went up from 15.57 per cent to 16 per cent between June 2015 and June 2016. It further increased to 16.21 per cent as on 11th August 11.

As on June 30, shares were pledged in as many as 509 of the 1,517 NSE-listed companies, which increased to 522 companies on August 11.

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Printable version | Jan 25, 2020 8:41:50 AM |

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