Pledging of shares by promoters of listed companies has reached its highest level since 2009, when it was made mandatory to disclose the encumbrance of shares by market regulator Sebi, a report has said.
According to an analysis of BSE-500 companies by ICICI Securities for the quarter ended March 2012, aggregate number of shares pledged as a percentage of those held by promoters rose to 10.4% from 9.4% a year ago.
This is the highest since 2009, when it became mandatory for firms to disclose the data. In December quarter, percentage of promoter holding pledged stood at 10.1%.
Experts believes promoters are forced to pledge shares with lenders in return for loans due to liquidity crunch.
"In the last 11 quarters, from the data available on pledged shares, we have been able to decipher that promoters have utilised pledging of shares to get loans on a regular basis. On an average, 8-10% of the promoter's holding has been pledged during September 2009-March 2012," ICICI Securities Head Research Pankaj Pandey said.
Companies such as Yash Papers, Zee News, Sri Adhikari Brothers and GTL have increased pledged shares between December quarter 2011 and March quarter 2012.
In contrast, firms including Tata Coffee, Adani Power, Mangalore Chemicals & Fertilizers and Shree Renuka Sugar, saw a drop in percentage of stake pledged in the March quarter.
Interestingly, there were four companies, including Gujarat Pipavav Port and Thomas Cook (India), where owners have pledged their entire stake.
Promoters of another 13 companies such as billionaire Vijay Mallya's United Spirits and real-estate developer Housing Development & Infrastructure Ltd (HDIL) have pledged more than 90% of their shares.
In terms of sector, companies in the oil and gas space have seen more than double the promoter shares being pledged in the March 2012 quarter as compared December quarter.
Real-Estate and power sectors too have seen a rise in the promoter shares being pledged, while banks and textile companies have been able to reduce the percentage of their promoter holdings being pledged.
"However except for the March quarter, the previous four quarters saw the BSE 500 index correcting 25%, resulting in an erosion of market capitalisation of stocks and the value of shares pledged for securing loans," Pandey said.
"In such a scenario, companies that have taken loans against shares have to provide further margin in cash or pledge more securities to maintain the margin requirement. The companies that default may face the situation of selling of pledged shares by lenders resulting in a decline in stock prices and reduction in promoter holding," he added.
In 2009, Securities and Exchange Board of India (Sebi) had mandated companies to make disclosures of shares pledged by their promoters after every quarter.