Max Financial Services, Ajanta Pharma, JSW Energy, Manappuram Finance, Adani Power, GMR Infrastructure, Reliance Capital and Asian Paints are some companies that reduced pledges in June.
The pledging of shares by promoters of NSE companies dropped to a six-year low in June following increased regulatory scrutiny and the negative sentiment attached to this by investors. Promoters of about 75 large and midcap companies including Sterlite Technologies, Adani Ports, GMR Infra, Emami, Indiabulls Housing, Indiabulls Real Estate and Jubilant FoodWorks redeemed pledged shares in June amid liquidity stress and a drop in stock prices.
“Given recent developments, both promoters and lenders are turning averse to share pledging,” said Pranav Haldea, managing director, Prime Database Group. “Investors too are looking negatively at companies with high share pledge levels.”
The Securities and Exchange Board of India (Sebi) last month said detailed reasons will have to be provided for pledging more than 20 per cent of the share capital or 50 per cent of the promoter holding. There’s also a closer watch on mutual funds’ exposure to loan against share (LAS) schemes. The percentage of pledged promoter holdings in NSE companies fell to a six-year low of 10.2 per cent at the end of June, according to Prime Database.
Seven companies — Sterlite Technologies, Mangalam Drugs & Organics, Himatsingka Seide, Indiabulls Real Estate, Indiabulls Housing Finance, Byke Hospitality and Cigniti Technologies — slashed pledged shares to zero in June.
Anil Agarwal-led Sterlite Technologies redeemed pledges worth Rs 3,400 crore last month. Indiabulls Housing and Emami redeemed pledges worth Rs 760 crore and Rs 610 crore, respectively, in June.
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Investors look askance at high pledge levels as a downturn in prices can lead to these being invoked, possibly leading to a change in management, said experts.
In value terms, promoters’ share pledging declined by 7.18 per cent to Rs 1.95 lakh crore on June 30 compared with Rs 2.09 lakh crore on May 31, according to Prime Database. As a percentage of total market capitalisation of all NSE listed companies, pledged promoter shares dropped from 1.40 per cent in May to 1.33 per cent in June.
“After a few instances of chaos where promoters pledged their shares to take debt in unlisted companies to fund other businesses, mutual funds have forced promoters to discontinue these structures, which is one of the reasons for reduction in pledge of shares,” said Sudip Bandyopadhyay, chairman, Inditrade Capital.
Following a slide in the shares of Essel Group companies earlier this year, mutual funds that had given loans against shares came to a standstill agreement with the promoters. Under this, the funds wouldn’t sell the shares even though they had fallen below the agreed threshold, in order to keep the units viable and allow the group to repay loans by selling assets. Sebi subsequently expressed its displeasure at such standstill agreements. Shares of several companies with high promoter pledges witnessed a sharp selloff after the Zee Group crisis.
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Max Financial Services, Ajanta Pharma, JSW Energy, Manappuram Finance, Adani Power, GMR Infrastructure, Reliance Capital and Asian Paints are some other companies that reduced pledges in June.
As many as 28 companies had the entire promoter holding pledged as of June 30. They included Gammon Infrastructure, IVRCL, McDowell Holdings, MSP Steel & Power, Raj Rayon Industries, Reliance Naval & Engineering and Rohit Ferro-Tech.
