Financial Distress? Pledged Shares by India Inc at 7-Year High

New Delhi: The value of shares pledged by promoters of the NSE-listed companies reached 7-year high of Rs 2.03 lakh-crore at the end of 2015, up 14 per cent from the year-ago level.

"Given the fall in equity markets, this points to a high level of financial distress," Prime Database Managing Director Prithvi Haldea said.

Share pledging is done by promoters to raise funds either for use in the same company or for financing other projects.

According to a report by Prime Database, value of shares pledged by promoters in the NSE-listed companies stood at Rs 2.03 lakh crore as on December last year, as compared to Rs 1.78 lakh crore in December 2014.

Overall, the average percentage of holdings pledged has gone up to 46.35 per cent at the end of last year, from 43.92 per cent in December 2014.

The report noted that pledging of shares by promoters hit a 7-year high in terms of value as well as percentage.

As of December 2015, pledging of shares was seen in as many as 517 of the 1,506 NSE-listed companies. In comparison, such pledging were witnessed in 370 companies six years ago.

"During this six-year period, the percentage of total promoter holding pledged has gone up dramatically from about 27 per cent to 46 per cent, with the value of pledged shares going up from Rs 1.28 lakh crore to Rs 2.03 lakh crore," the report noted.

High pledging levels can lead to change in management when the market is down.

As on December 2015, there were as many as 25 companies, in which the complete holding (100 per cent) of the promoters was under pledge, including Bajaj Hindusthan Sugar, IVRCL, Era Infra Engineering and Subex.

Besides, there were as many as 79 companies in which more than 90 per cent of the promoter's shareholding was pledged and a total of 208 firms in which more than 50 per cent of the promoter's holding was pledged.

Adani Ports & Special Economic Zone topped the list of companies with the highest pledging in value terms. Promoters have pledged company's shares worth Rs 10,065 crore.

This is followed by Cairn India (Rs 8,914 crore), Tata Consultancy Services (Rs 6,967 crore), JSW Steel (Rs 6,608 crore) and Essar Oil (Rs 6,558 crore).