Promoters of BSE 500 firms raise number of pledged shares by 23% in 2018

Promoters have raised the number of shares pledged with their lenders as collateral for borrowing by 23 per cent on a year-on-year (YoY) basis.

At the end of the December 2018 quarter, promoters of BSE 500 companies had pledged 15.7 billion equity shares, against around 12.8 billion equity shares at the end of the December 2017 quarter.

In rupee terms, promoter-owned shares worth nearly Rs 2 trillion were pledged at the end of the December 2018 quarter, up 2.6 per cent on a YOY basis. 

The pledged shares represented around 15.2 per cent of the promoters’ stake in the 111 BSE 500 companies, where promoters have pledged their shares, up from 14.3 per cent a year ago. 

The combined market capitalisation of these 111 companies was down 7.5 per cent during the 12 months ended December 2018.

For all BSE 500 index companies, pledged shares represented 3 per cent of all promoter stake (see table).

Pledging shares is most common among the promoters of mid- and small-cap companies. 

Analysts say the rise in pledged shares is on account of the recent decline in the broader market even as the large-cap or index stocks have held their ground.

“Nearly 1,000 stocks are down 20 per cent or more from their 2018 peaks. This has forced many promoters to top up the shares pledged with lenders as a collateral for the funds borrowed by promoter entities,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.

He said there could be a further rise in pledges if stock prices fell further. “Promoters can close the gap by either putting in more cash or increasing the numbers of shares pledged with lenders. The former will require a sharp rise in corporate earnings, which looks difficult now,” he said.

Among business groups, Adani tops the pledged chart, followed by JSW Group and Tata. At the end of December 2018, the Adani group promoters pledged their stakes worth Rs 36,422 crore in the group’s listed companies, accounting for 42 per cent of the promoter stake in the group companies.

The JSW Group promoters pledged 45.6 per cent of their promoter stake, worth Rs 18,236 crore, in JSW Steel and JSW Energy at the end of December 2018.

Other groups with large share pledges include Essel Group, Anil Ambani Group, Future Group, Naveen Jindal, Analjit Singh (Max Financial), Ratan Jindal (Jindal Stainless), and Apollo Hospitals.

The analysis is based on the shareholding pattern, pledged share data, and market capitalisation of the BSE 500 index companies at the end of December 2017 and December 2018, respectively.

Experts say the bigger problem for the promoters is the poor liquidity in the commercial paper market after the IL&FS debacle. “The biggest headache for many promoters is the refusal of the money market to roll over the commercial papers issued by promoters’ special purpose vehicles. 

This has severely affected the liquidity position for promoter entities,” said Saurabh Mukherjea, chief investment officer, Marcellus Investment Managers. 

He expects many more episodes like that of Essel Group, in which the promoters are forced to sell their crown jewel to raise funds for their struggling businesses. 

The problem for promoters have been exacerbated by poor corporate earnings. “The promoters have to find a way to stay afloat until a broad-based recovery in corporate earnings happens,” Mukherjea added.