CORE Education falls 80% in three days on margin calls

The shares of Mumbai-based CORE Education have crashed 81 per cent in the last three trading days, making its investors jittery on the future of the company and leading to margin calls on its promoters.

On Wednesday, the stock fell 48 per cent to Rs 58, with its market cap falling to Rs 660 crore.

Company insiders said these were some lenders liquidating shares of companies held as collateral from an investor (s) who was/were unable to meet margin call pressures. “Hence, the downfall in stock had nothing to do with the company’s business, but purely some investor-led transactions only,”  the company said.

But sources said due to the sudden crash in the stock, margin calls on the promoters to “top up” more shares to lenders will get triggered automatically.

The company said the loans taken by it against the pledge of shares have been used for projects and there were adequate cash flows to back the repayment. “The shares have been given as collateral.  We are engaging with concerned financial institutions on any further requirements that they might have. However, we are of the opinion that there will not be any need for further security since there are adequate internal accruals to back the repayment to these institutions.”

Normally, shares not part of a stock exchange's futures and options (F&O) segment can move as much as 20 per cent either way in a single trading session. Stocks that are part of a bourse's F&O segment do not have any price range. However, CORE is part of NSE's CNX IT index, which is part of the index derivatives and there were no circuit filters in place for the company.

The rising promoters-pledged shares are fast becoming a cause of concern for investors of many Indian companies.

According to a report by Morgan Stanley, as on December 2012, in rupee terms, the total pledged value stood at Rs1.5 trillion, up 5 per cent on quarter on quarter basis. Assuming a 50 per cent margin, the bank credit to these promoters at US$13 billion or Rs 70,000 crore -- which is 0.7 per cent of outstanding bank credit, the report said.