Mumbai: Promoters of nearly 600 firms, including one- third of those that constitute the bellwether Sensex index, have pledged shares worth about $13 billion (Rs65,520 crore), but this does not tell the entire story.
Capital markets regulator Securities and Exchange Board of India, or Sebi, has made it mandatory for promoters to disclose such share pledges, but they aren’t required to divulge information related to their group’s unlisted firms.
Also See Total amount pledged (PDF)
All listed firms that have pledged at least 26% of their paid-up equity (PDF)
Investment bankers say many promoters have pledged shares held through unlisted holding companies but are not disclosing such transactions as they don’t have to.
Share pledges by promoters as collateral to raise funds are the latest nag in a market already weighed by a global slowdown. Many promoters have pledged at least 50% of their firm’s equity and theoretically risk losing control.
In some instances, lenders have threatened to liquidate the collateral because of a slump in value. Typically, when share prices plunge, lenders ask for more shares as collateral. If the borrowers can’t bring in fresh stock the lenders sell the pledged shares to recover their money.
Sebi made the disclosures mandatory last month after it was found that B. Ramalinga Raju, who confessed to a multi-crore fraud at Satyam Computer Services Ltd, the company he founded, had pledged nearly all his shares with private lenders to raise cash. Companies have till 31 March to disclose share pledges, but don’t have to if the transactions are reversed by then.
Despite Sebi’s efforts, the disclosures made so far haven’t helped temper investor fears as nobody knows how the money raised through this route has been used. And not many promoters have revealed the identity of the lenders.
“There is nothing illegal about pledging shares and traditionally lenders ask for shares as a collateral, but the key question the promoters need to answer is for what purpose the money is raised,” said an investment banker with a foreign bank, asking not to be identified because of the sensitivity of the issue. “If the money is raised for a project, it’s fine, but if the purpose is to buy one’s own equity from the market, then there’s (a) problem.” Many groups are trying to raise fresh money through unlisted arms to get back their pledged shares, he added.
Two key constituents of the 30-stock Sensex, Reliance Industries Ltd, India’s most valuable company by market capitalization, and Bharti Airtel Ltd, the country’s biggest mobile firm, have not declared any pledging of shares.
Among firms that constitute the broader Nifty index, promoters of real estate developer Unitech Ltd have pledged 49.48% of the firm’s equity, valued at Rs2,253 crore, based on last Friday’s closing price. Promoters of Suzlon Energy Ltd, the world’s fifth largest wind turbine maker, have pledged 25.85% of its equity.
Among BSE-500 firms, the top traded companies that account for 93% of BSE’s total market capitalization, 191 firms have so far disclosed promoters’ pledging of shares. The market value of such shares is Rs58,419 crore, based on last Friday’s closing price. Promoters of five of these companies have pledged at least 50% of their firms’ equity.
Graphics by Sandeep Bhatnagar / Mint