Promoters of 517 companies have pledged nearly 46.35 per cent of their shares, the highest since the 2008 global financial crisis.
Promoters pledge shares to raise capital for the company, to finance projects of group companies, growth or even for personal reasons such as buying property. Shares are generally pledged with non-banking financial companies, which extend loans up to 50 per cent of the value of the shares.
Pranav Haldea, managing director of Prime Database, said, “Given the fall in equity markets, this points to a high level of financial distress. High pledge levels are typically not considered a good sign by investors, as a downturn in the market price can lead to invocation and change in management.”
There were 79 companies in which more than 90 per cent of the promoters’ shareholding was pledged. Another 208 companies had more than 50 per cent of the promoters’ holding pledged.
In terms of value of the pledged shares, companies like Adani Ports & Special Economic Zone, Cairn India, Tata Consultancy Services, JSW Steel and Essar Oil topped the list. The value of shares pledged by these companies is around Rs 40,000 crore.
Deven Choksey, managing director of KRChoksey Investment Managers, said, "I do not see the rise in pledged shares as a risk. In a growing economy, it is going to happen and it will only rise from here on. Fundamentally, it is a requirement from the bankers' side in the form of collateral and helps companies raise funds at a cheaper rate."
Pledging can become an issue if it involves more than 50 per cent of the promoter holding or more than 20 per cent of the company's equity capital. A correction in stock prices can trigger margin calls, which could lead to more shares being pledged.
If the share price falls below a threshold and the promoter does not have more shares to offer, the lender might invoke the pledge, leading to a further fall in the stock price. Lenders have on occasion invoked pledged shares and sold them in the market because promoters were unable to pay up on time.
The maximum amount of pledged shares during the quarter were held by the Kotak Group followed by IndusInd Bank. The value of pledged shares with the Kotak Group was Rs 2,188 crore.