Promoter pledges see decade-high surge as stress spikes

The pledged shares, by the promoters of India Inc to raise finances for their companies, have seen their biggest six-monthly surge in over a decade as many mid and small-cap companies are facing difficulty to raise the funds.

The data compiled by the Bombay Stock Exchange (BSE) and analysed by DH shows that, with 4,072 crore shares across 4,192 of the 4,722 BSE-listed companies pledged by the promoters, India Inc has seen a jump of 17.92% in the number of shares pledged by the promoters since the end of March 2020. This is the highest jump for a six-month period in a decade.

Earlier, in March 2010, the pledged shareholding had seen a jump of 25.34% when the global economy was severely hit by the global financial crisis.

Pledging of shares is one of the options that the promoters of companies use to secure loans to meet the working capital requirements, personal needs, and fund other ventures or acquisitions. A promoter shareholding in a company is used as collateral to avail a loan.

According to analysts, this situation is the result of corporate stress prevailing in the economy due to shoddily planned lockdown to beat Covid-19 pandemic.

"It means promoters of some companies (mostly in the mid-cap and small-cap space) are still using the promoter stake to raise funds from the market. It could be because of their inability to raise funds at the company level in the current scenario," said Hemang Jani, Head of Equity Strategy, Motilal Oswal Financial Services.

Compare this to the previous three half-yearly periods: this is the first increase in the past two years. The shares pledged by the promoters had dipped by 10.89% for the half-year ended March 2019, by 0.21% at the end of September 2019, and by 3.4% at the end of March 2020, as promoters were in a rush to deleverage their balance sheets.

On the contrary, the SEBI data shows that for the first three months of the current financial year, the outstanding corporate bonds, that stood at Rs 33.23 lakh crore saw a paltry growth of 2.1% -- indicating an inconsistency between growth in debt and growth in pledged shares.