personal finance

Some leveraged promoters risk losing their companies if rout goes on


Mumbai: The risk of sharper wealth erosion in about 180 mid- and small-cap companies where promoters have pledged more than 70% of their holdings has increased after the latest equities sell-off in the past two weeks. Some of the promoters could also lose ownership of their companies if the carnage were to continue on D-Street.

Lenders have already asked promoters of several companies to arrange margins. In some cases, they have sold pledged shares on Thursday and Friday, according to the chief executive of finance firm.

As on December 31, 2019, promoters of 106 listed companies, including Future Lifestyle, Future Supply Chain, Rattanindia Power, Dish TV India, Future Enterprises, and Hindustan Construction Company, pledged more than 90% of their holdings. Shares of some of these companies have fallen up to 50% since February 19.

“If the market slide continues, there are high possibilities of pledged shares getting liquidated or invoked, resulting in promoters who have pledged a high percentage of shares losing considerable money and ownership,” said G Chokkalingam, CEO, Equinomics Research & Advisory.

Shares of Kishore Biyani’s Future Group companies have been badly affected by the recent selloff. Stocks such as Future Supply Chain, Future Consumer and Future Enterprises have plunged by 48%, 37% and 30%, respectively, since February

19. Promoters have pledged more than 90% in the three companies.

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Promoters of about 75 companies, including Jindal Stainless, Jaiprakash Power, DFM Foods, India Glycols among others have pledged between 70% and 80% as on December 31, 2020.

Analysts said promoters of various smaller companies will be more vulnerable to margin calls by lenders as many of them have already pledged their entire stake. “Retail investors need to look at pledging of shares by promoters very closely as they are the ones who will face the brunt if stock prices plunge,” said Ajay Bodke, CEO (PMS), Prabhudas Lilladher. “The higher the pledge, the greater the risk.”

Last year, some of the promoters had to sell their stake to reduce the pledge. Essel Group sold 15.72% stake in Zee Entertainment in November to raise about Rs 4,560 crore to repay lenders who lent to the promoters against pledged shares.

Similarly the promoters of Emami — the Goenka and Agarwal families — had to sell 20% of their stake in the group flagship to reduce the pledge of shares.

Most of the loans availed through share pledges have tenures of one to three years and carry a margin 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.





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