The value of shares pledged by promoters of top 200 companies rose to $18 billion in the three months ended March 2013 the highest since September 2011 as companies faced a liquidity crunch and high working capital requirements at a time when economic conditions remain difficult. According to a recent Axis Capital report,the value of shares pledged by promoters stood at $17 billion and $15 billion,respectively,in the quarter ended December and September 2012.
Within the BSE top 200 universe,promoters of 62 companies had pledged their shares. Of the total,those belonging to chemicals & fertilisers,engineering,FMCG,infrastructure,logistics and metals saw the largest rise in percentage of shares pledge. On the other hand,companies within the BFSI space saw the steepest decline in pledged shares. The rise in promoter pledge was mainly seen in companies with a market cap of $1-5 billion.
Companies whose promoters have pledged more than 95% of the shares include Suzlon,Pipavav,United Spirits and HDIL. Promoters of Wockhardt and Essar Oil have pledged over 85% of their shares with lenders.
In early 2009,Sebi had asked companies to disclose shares pledged by their promoters at the end of every quarter. Promoters typically pledge their shares to raise working capital or term loans from banks,especially in times of a liquidity crunch and for capital-intensive businesses like realty and infrastructure where gestation periods for the projects are typically longer. In select cases,pledging is also done to raise funds for acquisitions.
Among Nifty companies,Asian Paints has the highest promoter pledge (~15%). However,the quantum has declined sequentially. In Hero MotoCorp case,pledged shares of promoters have been completely revoked compared to 3% pledged shares in the December 2012-quarter.