VR Logo

Pledging of Shares

Investors need to be on the watch for promoters pledging their stakes, which is the easiest way to raise money

The Reserve Bank of India's Financial Stability Report of December 2014 highlighted that services, media and entertainment, and manufacturing were the top three sectors where promoters have pledged a large portion of their shares with lending institutions. Pledging of shares is considered the easiest way to raise money. Promoters pledge their shares for a variety of reasons: for daily capital needs and operational work, to raise funds for an acquisition, to pay off debt or simply to cash in on the rise in share prices.

Pledging of shares works fine in a bull market. However, a market correction could upset the calculations of some promoters. If the promoter is unable to pay the lender on time, it could result in sale of his holdings by the lender. Companies with low profit growth or those which are beaten down by economic conditions can crumble in such circumstances as the promoters won't be in a position to meet demands of more money from the lender.

The list below shows that some promoters have pledged their entire holdings with lenders. Some others have pledged a significant portion of their total holdings. A point to remember is that a promoter pledging his shares with an institution is not always bad per se. Some fundamentally strong companies pledge shares to raise money for day-to-day needs and are generally able to pay off their debts and release their pledged shares.

Companies% of Promoters' Holding Pledged*Market-Cap** (in ₹Crores)
KS Oils10053
Rajshree Sugars & Chemicals10055
Sujana Metal Products10069
SEL Manufacturing Company100125
Bharati Shipyard100149
Surana Industries100191
Moser Baer India100201
AGC Networks100217
Gokaldas Exports100227
Carol Info Services100574
IL&FS Investment Managers100576
Jet Airways (India)#1005274
* As on September 30, 2014 (Q2 ending)
** Companies with market-cap less than 50 crore, as on January 13, 2015, have not been included
# Jet Airways (India) announced on January 14, 2015, that its promoter, Naresh Goyal, has pledged 100 per cent of his holding; market-cap as on January 13, 2015

Top 25 Companies Having Highest Pledged Market Value

Companies% of Promoters' Holding Pledged*Market-Cap (in ₹Cr)Market Value (in ₹Cr)
Cairn India65.814389028884
Zee Entertainment Enterprises36.463475412671
Essar Oil71.541493010681
Apollo Hospitals Enterprise64.821599210366
JSW Steel39.05239879367
Crompton Greaves61.42117777233
JSW Energy42.9166067124
Max India59.23107906391
GMR Infrastructure78.8573495794
Jet Airways (India)#10052745274
Adani Power39.85130535202
Suzlon Energy98.5648904820
* As on September 30, 2014 (Q2 ending)
(Only % of promoters' holdings equal to or more than 30 per cent have been considered)
# Jet Airways (India) announced on January 14, 2015, that its promoter, Naresh Goyal, has pledged 100 per cent of his holding; market-cap as of January 13, 2015