Sajjan Jindal-led JSW Steel Ltd. on Thursday said it has repaid debt of ₹1,148.59 crore to take a release of 5.07 crore of its pledged shares. This represents about 2.09% of its share capital, according to the company’s filing with stock exchanges.
The debt was repaid by three promoter entities that got their pledged shares released. These were, JSW Techno Projects Ltd. that repaid about ₹500 crore to release 2.2 crore encumbered shares, Sahyog Holdings Pvt. Ltd. repaid ₹391 crore and released 1.73 crore pledged shares and Vividh Finvest Pvt. Ltd. release of 1.14 crore shares for ₹258 crore.
As of quarter ended 30 June, JSW Steel had pledged about half of its 42.27% holding in the company by pledging about 50 crore shares. Of this, JSW Techno Projects had pledged 77.7% of its 10.23% stake in the firm, Sahyog Holdings had also created lien on 77.5% of its 4.6% holding and Vividh Fivest had encumbered 48% of its 5.9% stake in JSW Steel.
Promoters pledging shares with banks as collateral for loans is common practice in India. According to a Kotak Institutional Equities analysis of pledged holdings of BSE-500 stocks, the percentage of pledged promoter (majority shareholder) holdings by value has come down in the June quarter in comparison to the preceding three months.
The percentage of pledged promoter holdings declined to 2.47% of total promoter holdings in the June quarter, compared with 2.83% in the March quarter. Outstanding promoter pledged shares were ₹1.73 trillion, which is about 1.21% of the total BSE-500 Index’s market capitalization at the end of June.
The brokerage noted that pledging shares does not necessarily imply that a company or a promoter is under financial stress; lenders could have sought additional security in the form of promoter shares too.
In February, Adani Ports repaid ₹1397 crore to Catalyst Trusteeship Ltd. to get a release on 4.20 crore shares pledged by the company’s promoters – Gautam Adani and Rajesh Adani on behalf of SB Adani Family Trust.
However, there have also been cases in the recent past of promoters forced to sell assets or exit their companies under financial duress because of high pledge ratios. This week, private equity firm KKR enforced its pledges in CG Power and Industrial Solutions, in exchange for substantial control of the company. Lenders to CG Power now control the firm and have ousted former promoter Gautam Thapar. The Subhash Chandra-led Essel group is also in dire straits and has sold considerable stake in its flagship firm – Zee Entertainment Enterprises Ltd – to release promoter pledges of up to ₹13,000 crore.