Finance firms offload stocks as value of collateral drops
Exploiting the ongoing selling pressure by overseas investors, the bear cartel is forcing promoters of some mid-size companies to run for cover. Such promoters, or their associates, who had borrowed from non-banking finance companies (NBFCs) by pledging their personal holdings, either directly or indirectly, are in a bind.
Shares of companies such as Core Projects, Ranklin Solutions, among others, have witnessed heavy selling in the last couple of days as NBFCs resorted to offloading their collaterals, sources said.
“It was not the promoters’ stake that was sold by Indiabulls,” said Sanjeev Mansotra, the CMD of Core Projects, adding, “Some of the high networth individuals (HNIs), who were holding shares since inception, have pledge their holding to acquire additional shares in the market, which was sold as additional margin money was called for,” he added.
Not only the market capitalisation of such companies erodes like a pack of cards, but these borrowers are finding it difficult to fork out additional securities as collaterals. Since the value of these collaterals has eroded sharply in the last couple of months, they have been told to repay the loan or bring in additional shares as collateral.
Many of the realty companies, which have borrowed from these NBFCs in the absence of bank loans, are also facing a similar problem. Promoters of a realty company had given land as additional security as collateral despite the fact that the repayment schedule is for the next three years, sources said.
In the eventuality of failing to meet additional requirements, NBFCs have started resorting to selling these shares in the market, creating fresh selling pressure. “The finance companies are selling off shares as promoters are finding it difficult to arrange more shares or assets as collaterals,” said promoters of a realty company.
“The story of Orchid Chemical is being repeated with many more companies as promoters are finding it difficult to repay these high-cost loan. Unless the market recovers sharply and these shares gain substantially to meet the margin money, financiers have no option, but to sell the stock at any price,” said a senior executive of a finance company.
In April 2007, Ranbaxy Laboratories had picked up a 14.9 per cent stake in Orchid Chemical after Indiabulls and Religare Finance had sold Orchid Chemical’s shares, which were given to them as collateral by the promoters for borrowing money.
