More and more Indian corporates are pledging their shares, with around 67 companies disclosing details of the shares pledged to the exchanges this month. Among these are TCS, JSW Energy, Asian Paints, Suzlon Energy, Religare Enterprises and Lanco Infratech.
Meanwhile, promoters of Zee Entertainment Enterprises, Network 18 and Sun Pharma have revoked their pledged shares.
?Pharma companies may be raising money to tap the the growth opportunities in the generic space as several patented molecules are expected to go off-patent in the coming years,? said DD Sharma, senior VP ? research, Anand Rathi explaining why firms like Sun Pharmaceutical Industries, Aurobindo Pharma, Plethico Pharmaceuticals and Elder Pharmaceuticals may have pledged their shares. Often a liquidity crunch compels promoters to use shares as collateral for funds, at times even to aquire companies.
The need to pledge shares is higher for capital-intensive businesses such as realty and infrastructure as gestation periods for the projects in these sectors are longer. ?If the pledging has been done with an NBFC, any correction in stock prices could immediately trigger more margin calls which in turn could mean pledging more shares,?
says Sridhar Ramachandran, director at Brescon Corporate Advisors.
According to Sharma, pledging is risky if used for the promoter?s private funding needs, including buying property or the company?s shares. ?If the share prices fall below a threshold limit and the promoter doesn?t have additional shares to offer as margin, the lender may offload the shares,? he says.
In February 2009, market regulator Securities and Exchange Board of India (Sebi) tightened pledging norms, making it compulsory for firms to give details of pledged shares every quarter. According to Sebi rule, firms have to divulge details of pledged shares if it exceeds 25,000 shares in a quarter or 1% of the total shareholding or voting rights of the company, whichever is lower.