Pledged companies bear the heat

After Satyam announced that lenders had sold 2.45 crore shares pledged by the promoter, the market have shown a negative reaction to similar instances.

Signalling their aversion at promoters being financially weak, investors sold shares in companies where market got a wind of pledged shares by promoters. That is evident from the stock prices falling between 20 to 40% in the last 15 trading days.

From January 6 (the day when Raju disclosed his pledged shares), most stocks such as Nagarjuna Construction (-43 %), United Spirits (-42 %), Rolta (-37 %), XL Telecom (-33 %), Bombay Rayon (-32 %), KEI Industries (-28 %) and Bharati Shipyard (-26 %) have been the worst hit in terms of price correction.

Even the likes of Peninsula Land (-20 %) and Indage Vinters (-20 %) have also not been spared. The synchronised fall of ‘pledged counters’ - as they are now being referred to as in the broking circles - should be seen along side sensex fall which lost 10% during the same period.

“Investors will naturally treat these pledged stocks with disdain, fearing the worst. It will take more time for investors to get accustomed to share pledging.

So, companies which come out with disclosures on their own may be seen in better light,’’ B Madhuprasad, vice-chairman of investment bank Keynote Corporate Services, said. Pledged counters such as Gayatri Projects (-7%), Great Offshore (-7%), Shree Renuka Sugar (-7%) and Godrej Consumer (-7%) have fallen less than sensex.

IT consulting MindTree said its promoters have pledged 0.78% of their holding in the company to ICICI Bank and HDFC. Godrej Consumer, in fact, told shareholders that Godrej Industries, one of its promoters , has taken a loan from JP Morgan Security India by way of a share pledge.

“Promoters of most of these companies, with the exception of United Spirits (acquisition) and KEI Industries (term-loan ) and Godrej Consumer to some extent, have not stated why they leveraged themselves. But revelations could come sooner than later as SEBI has said that it would make it mandatory for founders of companies to disclose their pledged shares,’’ a Mumbai-based broker said.

Promoters pledge a part or substantial portion of their holdings in the company for a fixed term (up to 2 years) at rates of interest varying from 15 to 25%. This could have led to promoters in companies such as XL Telecom pledging 20% stake and United Spirits (18%), Nagarjuna Construction (12%), Great Offshore (14.88%) as well as Shree Renuka Sugar (10%) taking the same route, according to a survey done by brokerage Prabhudas Lilladher.

The percentage of stake pledged could not be ascertained for the likes of Indage Vinters (formerly Champagne Indage) and Gayatri Projects.

On the other hand, Akruti City, which has managed to release pledged shares with Indiabulls Financial, has seen its stock gain 23% in just five days after news of the release 2.32% stake came out (while sensex gained only 5%).

via ET