Investors need to be on the watch for promoters pledging their stakes, which is the easiest way to raise money
24-Feb-2015 •Dhruv Singhvi
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 Oils | 100 | 53 |
| Rajshree Sugars & Chemicals | 100 | 55 |
| Sujana Metal Products | 100 | 69 |
| SEL Manufacturing Company | 100 | 125 |
| PSL | 100 | 147 |
| Bharati Shipyard | 100 | 149 |
| Surana Industries | 100 | 191 |
| Moser Baer India | 100 | 201 |
| Subex | 100 | 206 |
| AGC Networks | 100 | 217 |
| Gokaldas Exports | 100 | 227 |
| Carol Info Services | 100 | 574 |
| IL&FS Investment Managers | 100 | 576 |
| Jet Airways (India)# | 100 | 5274 |
| * 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 | ||
| Companies | % of Promoters' Holding Pledged* | Market-Cap (in ₹Cr) | Market Value (in ₹Cr) |
| Cairn India | 65.81 | 43890 | 28884 |
| Zee Entertainment Enterprises | 36.46 | 34754 | 12671 |
| Essar Oil | 71.54 | 14930 | 10681 |
| Apollo Hospitals Enterprise | 64.82 | 15992 | 10366 |
| JSW Steel | 39.05 | 23987 | 9367 |
| Crompton Greaves | 61.42 | 11777 | 7233 |
| JSW Energy | 42.9 | 16606 | 7124 |
| Max India | 59.23 | 10790 | 6391 |
| GMR Infrastructure | 78.85 | 7349 | 5794 |
| Jet Airways (India)# | 100 | 5274 | 5274 |
| Adani Power | 39.85 | 13053 | 5202 |
| Suzlon Energy | 98.56 | 4890 | 4820 |
| * 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 | |||
