The pledging of shares by promoters of the NSE-listed companies have increased nearly 30 per cent in 2014-15. According to a report from Prime Database, the value of pledged shares moved up to Rs 1.94 lakh crore against Rs 1.52 lakh crore in the previous financial year. With such rise, about 43.4 per cent of total promoters' holding is pledged. Last year, the percentage stood at 41.75 per cent.
Companies like Cairn India, Adani Enterprises, Tata Consultancy Services, JSW Energy, Asian Paints and Adani Power, are among the those which have pledged shares the most. For instance, value of pledged shares by Cairn India alone is about Rs 15,801 crore while that of Adani Enterprises and TCS is Rs 8,000 crore and Rs 7,300 crore, respectively.
Share pledging is typically done by promoters to raise funds either in the same company or for financing other projects. While the rise can be partly explained by the rising stock prices, even in terms of percentage of promoter holding pledged the same has gone up. According to Pranav Haldea, managing director of Prime Database, "It was expected that promoters' pledged stakes would come down as higher share prices would create enough comfort zones for lenders. However, this has not happened. Ironically, the need for promoters to pledge their shares should have been high in 2012-13 and 2013-14, when many companies were cash-strapped and finances were difficult to raise."
Interestingly, the total promoters' holding pledged has been only increasing over the last few years. In 2010, it stood at 29 per cent. High pledge levels are typically not considered a good sign by the investors as a downturn in the market price can lead to invocation and change in management. Surprisingly, there were as many as 25 companies in which the complete holding (100 per cent) of the promoters was under pledge as on 31 March 2015, namely AGC Networks, Ankit Metal & Power, Bajaj Hindusthan Sugar, DQ Entertainment (International), Eastern Silk Industries, Era Infra Engineering, Gokaldas Exports, IL&FS Investment Managers, Ind-Swift Laboratories, IVRCL, Nissan Copper, Paramount Communications, Parenteral Drugs (India), PSL, Raj Rayon Industries, Rajshree Sugars & Chemicals, Rajvir Industries, Rohit Ferro-Tech, S.A.L.Steel, SEL Manufacturing, Servalakshmi Paper, Subex, Surana Industries, Suryajyoti Spinning Mills and XL Energy.
In all, there were as many as 200 companies in which more than 50 per cent of the promoter's shareholding was pledged and as many as 77 companies in which more than 90 per cent of the promoter's shareholding was pledged.
The top 10 companies, which moved from zero per cent to the highest per cent pledging of promoters' holding were Bajaj Hindusthan Sugar, AGC Networks, DQ Entertainment, IVRCL, Rohit Ferro-Tech, Servalakshmi Paper, Arvind Remedies (all from 0 to 100 percent), Burnpur Cement (0 to 90 per cent), Entegra (0 to 86 per cent) and Consolidated Construction Consortium (0 to 83 per cent). Overall, there were 206 companies in which the percentage of promoter holding pledged increased in this period.
On the other hand, the top 10 companies which saw a decrease in pledging of promoters' holdings were Jenson & Nicholson (96 to 0 per cent), HDIL (96 to 0 per cent), Raj Oil Mills (92 to 0 per cent), Dr. Datsons Labs (90 to 0 per cent), Pioneer Distilleries (86 to 0 per cent), Emco (75 to 0 per cent), 8K Miles Software Services (53 to 0 per cent), IL&FS Engineering & Construction (50 to 0 per cent), Blue Coast Hotels (98 per cent to 49 per cent) and Rico Auto Industries (70 per cent to 23 per cent).
In terms of the pledgee, maximum amount of shares were pledged to Centbank Financial Services, followed by Punjab National Bank and Kotak Mahindra Prime Ltd. Other pledgees include YES Bank, L&T Finance, IDBI Bank and IndusInd Bank.
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