Pledging of promoters’ shares hits seven-year high

The pledging of shares by promoters in NSE listed firms has hit a seven-year high as companies tried to capitalise on the rise in share prices to raise additional capital to meet their working capital requirements and other business expenditure.

According to data released by Prime Database, the percentage of promoter holdings pledged with banks and financial institutions went up from 15.57 per cent a year back to 16.21 per cent as on August 11, 2016.

Surprisingly, there were as many as 31 companies in which the entire promoter shareholdings was pledged with various financial institutions. Out of 1,517 companies listed on NSE, promoters of 522 companies have pledged a portion of their holding.

There were as many as 79 companies in which more than 90 per cent of the promoters shareholding was pledged and 212 companies in which more than 50 per cent of the promoter’s shareholding was pledged.

In value terms, the promoters pledging soared 17.20 per cent to Rs 2.08 lakh crore from Rs 1.77 lakh crore reported as at the end of June 2015.

Pranav Haldea, MD, Prime Database pointed out that a high level of share pledging by promoters is typically not considered a good sign by investors as a sharp downturn in the market price could lead to invocation of pledged shares and change in management.

However, he added that pledged shares do not necessarily mean or indicate stress in the company’s financials.

“However, it could raise serious concerns if significant portion of promoters holdings are pledged,” Mr Haldea said.

The largest pledge creation transaction was executed by Tata Sons Ltd, the promoter of the Tata Consultancy Services, pledging 1.70 crore shares on January 22, 2016 to state owned Life Insurance Corporation. The value of the pledged shares stood at Rs 3,902 crore.

On the other hand, the largest release of pledged shares transaction was by Vinod Shantilal Adani of Adani Ports & Special Economic Zone. About 7.30 crore shares worth around Rs 2,359 crore were released on September 11, 2015.