The value of shares pledged by promoters as percentage of the market capitalisation of their companies touched a new low in the June quarter after about 70 companies revoked their full pledges on shares.
The total value of pledged shares as a percentage of market capitalisation stood at 9.87 per cent, lowest since March 2009, when companies started disclosing data on this.
Market regulator Securities and Exchange Board of India (Sebi) in January 2009 mandated companies to make disclosures about shares pledged by their promoters after every quarter and also as and when they were pledged (event-based disclosure). Companies started making share pledging disclosures from March 2009.
For the April-period, a total of 770 had their promoter holdings pledged, down from 813 in the previous quarter. According to the latest report on share pledging by Morgan Stanley, 70 companies have revoked their full pledges on shares, while an additional 22 have reported fresh promoter pledging during the June quarter.
The total value of pledged shares of these companies stood at about Rs 1.28 lakh crore as on June 30, about 1.2 per cent lower compared to the March quarter. Meanwhile, the total market cap of companies with pledged shares remained more or less constant at Rs 13 lakh crore, according to data complied by BS Research Bureau.
Promoters of almost a third out of the 770 companies that have reported pledging during the June quarter have more than half of their holdings pledged.
Promoters pledge their shareholding with financial institutions as a security to borrow money. Typically, for every Rs 50 loan taken by a promoter, shares worth at least Rs 100 have to be pledged as collateral.
In case the share prices see a sharp drop, the financier asks the promoters to pledge additional shares or more money to bridge the shortfall. If the promoters fail to honour the requirement, the financier has a right to sell the shares in the open market.
Investors are watchful while investing in companies with high pledged promoter shareholding, as a decline in share price can trigger margin calls from financiers.
| CUTTING BACK Value of pledged shares as percentage of market-cap has fallen to record low | ||||
| Quarter ended | No of cos | Total m-cap* (Rs cr) | Value of pledged shares* (Rscr) | Pledged value as % of m-cap |
| Mar ’09 | 732 | 5,76,411 | 73,849 | 12.81 |
| Jun ’09 | 750 | 9,92,272 | 1,22,050 | 12.30 |
| Sep ’09 | 756 | 1,235,681 | 1,40,887 | 11.40 |
| Dec ’09 | 741 | 12,40,314 | 1,38,990 | 11.21 |
| Mar ’10 | 769 | 13,62,072 | 1,55,472 | 11.41 |
| Jun ’10 | 773 | 13,79,742 | 1,60,299 | 11.62 |
| Sep ’10 | 789 | 15,86,351 | 1,77,131 | 11.17 |
| Dec ’10 | 795 | 15,66,440 | 1,73,660 | 11.09 |
| Mar ’11 | 811 | 14,64,059 | 1,65,001 | 11.27 |
| Jun ’11 | 788 | 14,63,928 | 1,53,393 | 10.48 |
| Sep ’11 | 802 | 11,68,514 | 1,20,726 | 10.33 |
| Dec ’11 | 795 | 10,57,225 | 1,04,427 | 9.88 |
| Mar ’12 | 813 | 13,14,676 | 1,30,033 | 9.89 |
| Jun ’12 | 770 | 13,01,549 | 1,28,469 | 9.87 |
| * Calculated according to the quarter-ended in market cap Compiled by BS Research Bureau Source: Capitaline | ||||
Among the companies with over $500 million market cap are United Spirits (98 per cent), Pipavav Defence (97 per cent) and Wockhardt (87 per cent). These have the highest percentage of promoter holdings pledged.
Among Nifty companies, Mahindra and Mahindra, JP Associates and Sun Pharma saw significant amount of incremental share pledging during the June quarter, according to a report by Edelweiss.
Among sectors, consumer discretionary followed by materials, have the biggest pledging by promoters in value as well as the most widespread promoter pledging, says Morgan Stanley. During the June quarter, utilities saw a large fall in share pledging, while the healthcare sector saw the highest incremental pledging.
Morgan Stanley says about $11.5 billion (about Rs 64,000 crore) of bank credit, which is 2.7 per cent of outstanding bank credit, could be given to promoters by way of share pledging.
