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Pledging of shares by promoters of listed companies rose nearly 30 per cent in 2014-15. According to a report from Prime Database, the value of pledged shares moved up to Rs 1.94 lakh-crore against Rs 1.52 lakh-crore the previous financial year. With this, 43 per cent of total promoter holding was pledged. Last year, the percentage had been 42 per cent.
Cairn India, Adani Enterprises, Tata Consultancy Services, JSW Energy, Asian Paints and Adani Power are among those with pledged shares. The value of such shares in Cairn India alone is Rs 15,801 crore, while that of Adani Enterprises and Tata Consultancy is Rs 8,000 crore and Rs 7,300 crore, respectively.
Share pledging is typically done by promoters to raise funds, either in the same company or for financing other projects. While the rise can be partly explained by rising stock prices, it has also risen in terms of percentage of promoter holding. Pranav Haldea, managing director of Prime Database, says: “It was expected that promoters’ pledged stakes would come down as higher share prices would create enough comfort zones for lenders. However, this has not happened. Ironically, the need for promoters to pledge their shares should have been high in 2012-13 and 2013-14, when many companies were cash-strapped and finances were difficult to raise.”
The total of promoter holding pledged has been increasing over recent years. In 2010, it was 29 per cent. High pledge levels are typically not considered a good sign by investors, as a downturn in the market price can lead to invocation and change in management. As many as 25 companies had the complete holding (100 per cent) of the promoters under pledge as on March 31, 2015.
These include AGC Networks, Ankit Metal & Power, Bajaj Hindusthan Sugar, DQ Entertainment (International), Eastern Silk Industries, Era Infra Engineering, Gokaldas Exports and IL&FS Investment Managers, among others.
In all, there were 200 companies in which 50 per cent of the promoters’ shareholding was pledged and 77 in which 90 per cent of the promoters’ shareholding was pledged. The top 10 companies here were Bajaj Hindusthan Sugar; AGC Networks; DQ Entertainment; IVRCL; Rohit Ferro-Tech; Servalakshmi Paper; Arvind Remedies (all from 0 to 100 percent); Burnpur Cement (0 to 90 per cent); Entegra (0 to 86 per cent); and, Consolidated Construction Consortium (0 to 83 per cent). Overall, there were 206 companies in which the percentage of promoter holding pledged increased in this period.
On the other hand, the top 10 companies which saw a decrease in pledging of promoters' holdings were Jenson & Nicholson (96 to 0 per cent), HDIL (96 to 0 per cent), Raj Oil Mills (92 to 0 per cent), Dr. Datsons Labs (90 to 0 per cent), Pioneer Distilleries (86 to 0 per cent), Emco (75 to 0 per cent), 8K Miles Software Services (53 to 0 per cent), IL&FS Engineering & Construction (50 to 0 per cent), Blue Coast Hotels (98 per cent to 49 per cent) and Rico Auto Industries (70 per cent to 23 per cent).
In terms of the pledgee, maximum amount of shares were pledged to Centbank Financial Services, followed by Punjab National Bank and Kotak Mahindra Prime Ltd. Other pledgees include YES Bank, L&T Finance, IDBI Bank and IndusInd Bank.
