Godrej Consumer promoters pledge 7.8 per cent stake

Fast moving consumer goods company Godrej Consumer Products (GCPL), a part of the Godrej Group, today said its promoters have pledged as much as 7.78 per cent of their holding with JP Morgan Securities to borrow funds.

The announcement follows the Securities and Exchange Board of India’s (Sebi) decision to make it mandatory for promoters (including promoter groups) of companies to disclose shares pledged with lender to encourage transparency and also to avoid recurrence of Satyam like event. GCPL is the first company to have made such a voluntary disclosure on BSE.

The shares were pledged by Godrej Industries (GIL), which owns a 20 per cent stake in Godrej Consumer Products. Godrej Industries has pledged 1,95,00,000 equity shares out of 5,18,16,609 equity shares of GCPL. Commenting on the disclosure, Adi Godrej, chairman, GCPL, told Business Standard, “The total amount of pledged shares is less than 10 per cent and is not a cause of concern for us as it was required by our promoter company for its GIL’s requirements.”

Pledging of shares is a common practice with promoters. It is estimated that at least 150 companies have pledged shares to raise funds. However, in recent times lenders had to resort to selling pledged shares after a few promoters failed to pay up margins to make up for a decline in the price of their shares. Additionally, some promoters have defaulted in making payments on time, which has also forced lenders to offload shares. This trend has led to dilution of promoters’ stake as was seen in the case of Satyam. Pledging of shares is a process where the person who owns the shares makes a request to a depository participant to pledge it in the name of the lender that is providing the loan against those shares.