PAINS OF PLEDGED SHARES

Promoters pledge shares worth Rs 1.5 trn in 782 firms

FPJ BUSINESS DESK Mumbai Even as the overall market has been bearish, several stocks like GTL, GTL Infra and S Kumars Nationwidehave come in for special hammering in the last few days. A closer look reveals a gloomy picture.

The promoters of these companies have pledged their shares and there have been rumours that lenders are planning to sell pledged shares of these entities.
Quoting a report by brokerage house SMC Global Securities, PTI said Indian companies have pledged shares worth around Rs 1.5 lakh crore with lenders in about 782 companies, including biggies like TCS, Adani Power.
In terms of value of shares pledged, the list is topped by IT giant TCS with about Rs 22,447 crore worth of shares pledged, it added.
TCS is followed by Adani Power ( value of promoters shares pledged is Rs 9,213 crore), Hero Honda ( Rs 7,787 crore), Tata Motors ( Rs 4,865 crore), JP Power Ventures ( Rs 4,720 crore).
However, the report said that these firms ( TCS, Hero Honda, Tata Motors) are fundamentally strong entities and can withstand any margin call scenario.
This week, panic selling in GTL, GTL Infra and S Kumars Nationwide eroded the market capitalisation of this companies significantly.
Before making their investment decisions, investors should take note of promoter pledge aspect, mainly in entities with smaller market cap and substantial promoter pledging.
There shall be some regulatory requirement wherein companies shall disclose the purpose of usage of funds, the names and nature of lenders as a share pledge with banks tend to be less risky than the share pledge with NBFCs, it said.
Lack of developed corporate bond market in the country is forcing the Indian corporates to take this route for their capital requirement.
There are about 169 companies ( including Gati, Gujarat NRE Coke, United Spirits) whose promoters have pledged 50 per cent to 90 per cent.
While, in about 44 companies promoters have pledged between 90- 100 per cent ( Tata Coffee, Gujarat Pipavav Port, Pipavav Shipyard, Ansal Properties, Koutons Retail, Euro Ceramics, Andhra Cements, Gayatri Projects), the report said.
In terms of value of share pledged the other top companies are Asian Paints ( Rs 3,365 crore), Tata Power ( Rs 3,247 crore), Jaypee Infratec ( Rs 3,120 crore), United Spirits ( Rs 2,945 crore), Suzlon Energy ( Rs 2,836 crore), Unitech ( Rs 2,686 crore), the report said.
(source:http://fpj.co.in/news/5351-Promoters-pledge-shares-worth-Rs-1-5-trn-in-782-firms.html)