Firms with high pledging face selling pressure

Shares of companies whose promoters have pledged a large portion of their holdings to raise funds have come under pressure on fears the lenders may sell some of the collateral.

After the fall in stock prices in the last four sessions, the mark-to-market value of the pledged shares has gone down by more than 25 per cent in some cases. In such a scenario, lenders ask for more cash from promoters or liquidate shares to meet the shortfall.

It is common for promoters in realty and infrastructure sectors to pledge shares to raise money for projects.

“Investors are worried that the lenders may sell some collateral in case of companies whose share prices have fallen sharply,” said the managing director of a domestic broking firm who wished not to be named.

Shares of companies like MIC Electronics, Orbit Corporation, S Kumars Nationwide, Pipavav Shipyard, Hotel Leelaventure, Kingfisher Airlines and Adani Power fell between five per cent and 13 per cent on Friday. Since Monday’s close, these stocks have fallen 26-67 per cent. More than 40 per cent promoter holding in these companies is pledged.
 

COLLATERAL DAMAGE Share price on BSE in Rs
Name	% Chng#	26-Nov	Pledged*
MIC Electronics	-66.43	27.46	81.81
Orbit Corpn	-56.41	29.46	67.67
S Kumars Nation	-55.60	35.25	79.40
Pipavav Shipyard	-55.19	44.81	100.00
Hotel Leela	-45.41	23.23	42.55
KF Airlines	-33.73	45.38	68.48
Adani Power	-26.49	40.65	55.30
* Pledged shares as percentage of promoter holding # % Change over Nov 22, 2010  Data compiled by BS Research Bureau

“Some of the stocks have fallen over 50 per cent in the last three days. There is a possibility the lenders may have partially sold shares,” said the head of institutional equities at a Mumbai-based brokerage.

As of September 30, promoters of 856 Indian companies had raised money by pledging shares, according to data from the BS Research Bureau.

There is some nervousness in the market since the bribery-for-loan scam surfaced on Wednesday. Shares in banking, realty and infrastructure sectors have been the worst affected.

A number of companies whose shares have been hammered in the last three days are clarifying their position to analysts through conference calls, say brokers.

There were media reports in the morning about margin calls. However, both the National Stock Exchange and the Bombay Stock Exchange (BSE) said settlements were completed according to schedule and there were no margin/settlement issues.

Midcap and smallcap stocks suffered heavy losses on Friday. The BSE Midcap index lost 3.06 per cent, while the BSE Smallcap index declined 4.49 per cent.

In comparison, the 30-stock Sensex lost 0.94 per cent, or 181.55 points, to close at 19,136.61.