Promoters may use holding firms as escape route

Holding companies may soon be in vogue since they appear to be the escape route for promoters of listed companies who do not want to disclose their shares pledged with lenders.

The Securities and Exchange Board of India, or Sebi, on Wednesday made it compulsory for promoters of listed companies to disclose the details of their pledged shares, but clarified that there would be no need to disclose pledged shares of the holding company.

Legal and accountancy experts say this may lead to a restructuring of the shareholding pattern in many companies.

“Promoters do not hold shares directly in those (listed) companies but through investment companies,” said Kanu Doshi, senior partner at Mumbai-based accountancy firm Kanu Doshi Associates. “The fine print of the Sebi directive may permit non-disclosure of pledge of shares by investment companies.” Under Sebi’s takeover code, selling of holding companies’ shares is akin to selling the shares of listed companies.

The regulator is yet to announce the date for periodic declarations of pledged shares.

Promoters of at least 150 companies are understood to have raised funds by pledging their shares, the most prominent of them being former Satyam Chairman Ramalinga Raju, who pledged his entire stake to lenders in December. The lenders dumped the shares in the market when Raju failed to pay margins.

“If disclosure of pledge of shares of unlisted holding companies is not made mandatory, it is possible that some promoters would restructure their holding pattern to avoid disclosure,” said Anoj Menon, solicitor with Mumbai-based legal firm Crawford Bayley.

Lenders ask promoters to pay additional margins when the value of the shares pledged as collateral falls. Lenders sell these shares in the market if promoters fail to pay margins — a common trend in a rapidly falling market. This could have a cascading impact on the stock price.