Another month of 2008 goes by without offering any sort of respite. The crisis that began in the stock markets in the beginning of the year has blown into a major financial meltdown that is affecting all and sundry. Investors have seen their assets burn down and become liabilities, while at the same time; promoters are running around making desperate attempts to keep their companies afloat. Raising cash has become their top priority and while a few took advantage of dirt-cheap stocks, others have had to part with their shares to increase their cash holdings.
A look at the shareholding patterns of BSE 500 companies reveals that 44 of them have been witnessing a continuous decline in their 'promoters group' shareholding since March 2008. On the other hand, there were 34 companies, which increased their holding.
Another interesting trend or fallout of the global turmoil is that of promoters pledging their holding in the company either with banks or NBFCs or through some informal sources to raise funds. Recently, Sobha Developers' promoters pledge an additional 5.89 per cent equity with Bank Sarasin, Switzerland, taking their total promoters' pledged equity to 24.4 per cent with Bank Sarasin and Credit Suisse. Great Offshore is another company that has pledged its shares with the lender. Even the news of Unitech pledging shares with a lender to repay the loan taken by Indiabulls is doing the rounds, which is the reason why its stock is biting the dust.
Though such deals have nothing to do with the company, as it's the promoter who has taken the loan and not the company, investors who are making an investment decision purely on the basis of the promoter's shareholding should factor in such information.
One cannot forget the gamble played by the promoter of Orchid Chemicals, wherein the promoter pledged the shares with a brokerage house, against loan to increase the stake in his company. Eventually the shares that were pledged ended up in the hands of a third party because the shares plunged and the promoter failed to meet the margin calls - the deficit.
So while promoters are evaluating their options and acting accordingly, investors too need to follow a cautious tread.
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This article was originally published on December 12, 2008.
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