Concerns Over Pledged Shares Worry Lenders, Promoters

New Delhi: At a time when standstill agreements over pledged shares between companies and their lenders have come under check by the market regulators, including the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), lenders who funded against shares are turning cautious, while some promoters of big business groups are on a spree to release their shares pledged at the cost of other assets, as seen in a new trend during the fourth quarter of this financial year.

Several promoters, including those of Adani Ports, Adani Power and Emami, are reportedly in talks with their lenders to release their pledged shares by raising funds from other sources. In the last two months, these promoters have already released part of their shares pledged by paying off their obligations.

As per the recent Bombay Stock Exchange (BSE) data, the promoters of Adani Ports have pledged 45.51% stake worth Rs 19,672 crore and Emami promoters pledged 47.58% of their stakes (Rs 6,276 crore). Other such big borrowers include the promoters of JSW Steel (43.6% promoter stake pledged worth Rs 12,887 crore), Zee Entertainment (59.37% promoter stake pledged worth Rs 11,452 crore) among others.

As of date, promoters of 2,947 BSE listed companies, out of more than 4,100 companies have pledged their holdings worth around Rs 2.24 lakh crore, according to data available from the BSE.

Six companies in the top 500 BSE companies had pledged more than 90-100% of their promoter holdings, according to BSE data.

While the percentage of pledged promoter holdings remained at 6.7% in the September and December quarters of this financial year, it is more likely that this percentage would come down.

Quoting an institutional source, the Indian Express reported that the companies run by promoters (who are big borrowers through pledged shares route) are “already in the stressed asset list of banks. Any crash in share prices could lead to problems for the lenders. Lenders have tightened their due diligence.”

In February this year, two beleaguered corporate giants -- Anil Ambani’s Reliance ADAG and Subhash Chandra’s Essel Group -- announced that they had made standstill agreements with their lenders gaining moratorium alongside protection for their shares pledged till September this year. Both the groups claimed that the agreements covered more than 90% of the loans pledged against their shares.

Following these developments, it has been reported that market regulators RBI and SEBI are likely to take action to check if any “evergreening of loans” is being attempted through such deals between lenders and promoters.