Pledged shares no sweat for firms

Promoters of 467 companies have pledged with lenders an average 23 per cent of their holdings so far, but India Inc isn't losing any sleep over it. For, a majority of Indian companies have been pledging shares for more than two decades, if not longer. Also, the pledged shares are just over 2 per cent of Indian stock market’s market-cap of Rs 30.71 lakh crore.

Hinduja Group CFO Prabal Banerji said pledging of shares with institutions was a time-tested practice. "In today’s scenario, this has increased as promoters want to invest money in their company, which need growth capital but sources for the same have dried up or the same is available at a very high cost,’’ he said. 

Stock market regulator Sebi has asked companies to disclose details of shares pledged by their promoters if the same exceeds 25,000 shares in a quarter or one per cent of the total outstanding shares, whichever is lower. The deadline for such disclosures expires tomorrow.

CASH COUNTER Pledged shares by promoters disclosed on Monday
	Shares pledged*	% of paid-up shares
Apollo Hospitals	10.95	18.18
Aventis Pharma	2.37	10.27
Carol Info	22.26	62.82
Cinemax India	11.48	41.00
Dr Reddy's Labs	10.01	5.94
Ess Dee Alum	3.20	11.49
Essar Oil	403.61	33.59
Essar Shipping	64.22	15.07
GHCL	2.39	2.39
GMR Infra	229.28	12.59
Kingfisher Airlines	116.47	43.80
Koutons Retail	8.06	26.38
Mangalore Chem	23.59	19.91

The value of shares at the time of pledging, or the loans promoters raised against them, is not known as they were not required to disclose these details. Only about half a dozen companies had disclosed the value of these shares at the time of pledging and they include GVK Power & Infrastructure, Hindustan Motor, and Tata Coffee. The value of the pledged shares has slumped between 8 to 37 per cent since the pledging date.
 

	Shares pledged*	% of paid-up shares
McDowell Holding	1.61	13.22
MIC Electronics	22.09	21.93
Moser Baer	2.63	1.56
Rei Agro (D)	3.31	11.46
Reliance Comm	272.35	13.19
Reliance Infra	37.24	16.35
Satra Properties	36.31	23.37
Sterling Biotech	64.98	26.64
Unitech	803.35	49.48
United Brew Hold	5.00	7.48
United Breweries	23.94	9.97
United Spirits	33.28	33.22
Videocon Ind	83.55	36.41

There are 114 companies where promoters have pledged more than 50 per cent of their stake, but lenders said this should not be a cause for worry as in most cases, the pledging of shares was driven by institutions, which insist on this for giving project finance.

“For funding new projects, it’s mandatory for promoters to pledge 51 per cent of their holding, which can be higher in some cases. Very often, we don’t release the pledge till the loan is fully paid,’’ said a senior executive with ICICI Bank. No project finance is available without pledging of shares by promoters. 

So, for many in India Inc, this is business-as-usual. Take JP Hydro Power, where the promoters have pledged 94.86 per cent of their stake with lenders. It turns out that the promoters had pledged this stake, starting in 1995 when it raised loans from financial institutions to construct a hydro-power project.

This is the 300-MW Baspa II project in Himachal Pradesh, commissioned in 2003. “The shares were pledged with lenders in tranches during the construction period, which was essentially a collateral security sought by lenders for grant of financial assistance,’’ said RK Narang, director & CFO, Jaiprakash Hydro-Power.

Some, like India Cements, are CDR (corporate debt restructuring) cases, where promoters have to pledge their entire stake with lenders. “We don’t release the pledge till we are comfortable,’’ said a banker. In India Cements, the promoter stake is pledged with lenders since its CDR in 2003, said its CFO VM Mohan.