Market mayhem leaves promoters high & dry

Promoters of over a dozen firms have been forced to let go of pledged shares as many of them struggled to raise money in time to top up the value of their collateral in the recent market crash.Lenders have invoked promoter shares in companies such as JustDial, Asian Hotels (North), Reliance Capital, Eveready Industries, Reliance Home Finance and Mandhana Retail in the past month. The more deep-pocketed promoters of over 50 firms managed to bring in fresh shares to make up for the decline in collateral.In these cases, the lenders may have transferred the holdings to their accounts, but it is not clear whether they have been sold.In the case of Reliance Capital, Axis Trusteeship Services invoked shares that constitute nearly 15% of the company’s total equity earlier this month. Reliance Capital shares have fallen 75% in the past month. Shares of Anil Ambani-led firms such as Reliance Home Finance, Reliance Communications and Reliance Naval were also invoked by lenders.“There is a high possibility that pledged shares would be liquidated, or invoked and sold in the open market if the slide in these stocks continues,” said G Chokkalingam, CEO, Equinomics Research & Advisory. “This may result in promoters losing their ownership, as has happened in so many cases earlier.”On March 5, HDFC invoked 3.2 million shares of Eveready Industries pledged by promoters Williamson Magor & Co. Lenders have also invoked shares of companies such as Asian Hotels (North), JustDial, Mandhana Retail and Arcotech.Meanwhile, the promoters of more than 50 companies were able to provide top-up in terms of additional securities in the past month.Billionaire industrialist Gautam Adani and his family brought in additional shares worth Rs 11,000 crore as collateral, according to a Bloomberg analysis of regulatory filings for four of his group’s companies — Adani Port, Adani Enterprises, Adani Transmission and Adani Green Energy.“Currently, the risk of panic selling of pledged shares is low. However, if the Nifty falls another 1,000-1,500 points, many promoters will not be able to top up the margins,” said Ambareesh Baliga, an independent analyst. “The high proportion of shares pledged by promoters is an indication of the funding crunch that they are facing.”Most loans availed through share pledges have tenures of one to three years and carry a collateral requirement of two-three times. This means that to secure a Rs 100 crore loan, a promoter needs to pledge shares worth Rs 200-300 crore.The promoters of Emami provided 838,000 shares to IndusInd Bank as topup collateral on March 20. The same day, the promoters of Motherson Sumi increased their pledge by 24.5 million shares in favour of Kotak Mahindra Investment. Similarly, promoters of Jindal Steel & Power increased their pledge by 1.13 million shares in favour of IDBI Trusteeship on March 23.

from Economic Times https://ift.tt/39ldder