Share pledging by India Inc at 7-yr high

Value of pledged shares at the end of June quarter was Rs 1.97 lakh crore, or 8.5% of India's market cap

Pledging of shares by promoters of India Inc is at a seven-year high. The percentage of promoter holding pledged with lenders was at 16 per cent at the end of the June quarter, compared to 15.43 per cent in the preceding one and 15.57 per cent a year ago, according to PRIME Database.

The value of pledged shares at the quarters end was Rs 1.97 lakh crore, or 8.5 per cent of India’s market capitalisation. Around 16.2 per cent of promoter shareholding, valued at Rs 2.08 lakh crore, is currently pledged.

Share pledging is a common practice among promoters for raising capital. The increase in value is largely due to rise in prices of the underlying shares. The benchmark Sensex had rallied 6.5 per cent in the quarter. According to the primary market monitor, 522 of the 1,538 companies listed on the National Stock Exchange have at least some share pledging .

The average pledging in these 522 companies is 46.7 per cent, compared to 47.4 per cent a year before.

“High pledge levels are typically not considered a good sign by investors, as a downturn in market price can lead to invocation and change in management,” said Pranav Haldea, managing director, PRIME Database. In the event of stock prices of pledged shares falling, promoters have to provide more shares as collateral, failing which lenders might start liquidating these.

As many as 31 companies had the entire promoter holding pledged at the end of the  quarter. Some of these companies include Bajaj Hindusthan Sugar, Bharati Defence & Infrastructure, Gokaldas Exports, IL&FS Investment Managers, Ind-Swift Laboratories, Venus Remedies and VISA Steel. There are 79 companies where more than 90 per cent of the promoter’s shareholding is pledged and 212 where more than 50 per cent of is says to PRIME Database.

However, lenders such as Kotak Mahindra Bank, Life Insurance Corporation of India and IndusInd Bank have the maximum number of shares pledged in their favour.