As banks limit lending, promoters resort to pledges

At a time when banks are reluctant to lend to stressed sectors amid rising defaults, share pledging by corporates for fund raising has surged to a seven-year high.

As on June 30, the value of pledged shares across all National Stock Exchange-listed companies rose to Rs 1.98 lakh crore from Rs 1.77 lakh crore, a year ago. That value has further increased to Rs 2.08 lakh crore as on August 11, says Prime Database, a Delhi-based firm that collects and analyses data.

Shares are typically pledged by promoters as collateral to raise funds for the business and is done to provide alternate means to generate money.

In percentage terms, promoter holding pledged across NSE-listed companies went up to 16% as on June 30 from 15.57%. As on August 11, it had further risen to 16.21%.

The sustained rise in share prices over the last several months, could be a key reason behind the increased shares pledging, says Pranav Haldea, MD, Prime Database. “As on June 30, shares were pledged in as many as 509 of 1,517-listed companies (further increased to 522 companies on August 11), up from 496 companies a year back,” he said.

There were 31 companies, in which 100% company holding of the promoters was pledged. These included IVRCL, JMT Auto, DQ Entertainment, Gokaldas Exports, AGC Networks, IL&FS Investment Managers, IVRCL, Reliance Defence and Engineering, Visa Steel among others.

Pledging higher number of shares is a risk because if the stock price slumps, lenders can invoke the pledged shares and could even lead to a change of management.

By value of pledged shares, Tata Consultancy Services led the list, with shares worth Rs 10,708 crore pledged. As percentage of total promoter holding, however, it was only 2.90%.

Adani Ports (pledged shares worth Rs 9,514 crore or 39.18%), Cairn India (Rs 9,072 crore or 57.49% worth pledged shares), Zee Entertainment (Rs 7,310 crore or 38.71% worth shares pledged) and JSW Steel (pledged shares worth Rs 6,940 crore 47.26%) followed TCS in the list of high shares pledged by value.