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K.S. Badri Narayanan

Chennai, Feb. 8 Promoters of listed Indian companies have pledged shares worth over Rs 5,000 crore at current market value, as security for loans availed from banks and financial institutions.

A snap analysis of disclosures to stock exchanges made in recent times by 85 companies showed that current market value of such shares stood at around Rs 5,200 crore.

Most companies/promoters preferred not to disclose the identity of the financial institutions. However, an analysis of those that did, showed that State Bank of India (SBI) and Canara Bank among the public sector banks and the ICICI Bank in the private sector were most prominent in holding custody of shares as security against monies lent by them or as trustees against monies lent by others.

Aban Offshore, Asian Paints, Dr Reddy’s Lab, Godrej Consumer Products, Great Offshore and JB Chemicals are names of some of the more prominent companies whose promoters have pledged shares against loans availed by them.

Aban Offshore promoters pledged 30.8 lakh shares representing 8.14 per cent of the value of the total paid-up equity capital. In the case of Dr Reddy’s Lab, 1.04 crore shares have been pledged representing 6.19 per cent equity capital. In a few cases, however, promoters have pledged their entire stake or close to that. A notable case is that of the Ramalinga Raju family controlled Maytas Infra.

Others in this category include Ashima Ltd, IG Petrochemicals, IOL Netcom, Rain Commodities, Shreenuj, Zicom Securities and Zylog Systems. Among industry segments, companies in the realty and entertainment sectors figure prominently.

TV-18, PVR, Balaji Telefilms, Radaan Media, Shree Ashtavinayak Cine Vision, UTV Software and Crest Animations are companies in the entertainment and media sector that have disclosed that their promoters have pledged their shares.

In the realty space, C&C Constructions, CHD Developers, Ganesh Housing, J Kumar Infraprojects, Lanco Infratech and Peninsula Land have reported of promoters pledging parcels of their shareholding in these companies. Also, a disproportionately large number of companies appear to be based out of Andhra Pradesh.

Only a few companies have disclosed the date when these shares were pledged. But from the few that have done so, it appears that the phenomenon has been in vogue for quite some time, dating as far back as 2001.

For instance, Ashima and JIK Industries have reported that their promoters have pledged their shares in 2001. In contrast, Vishal Retail said that its promoters pledged their shares as recently as January 13, 2009.

Market regulator SEBI had asked promoters of listed companies to disclose if they have pledged shares with lenders/custodians as security against loans availed by them directly or against guarantees in respect of loans availed by others. The market regulator’s stipulation on such disclosure came in the wake of the Satyam scam, wherein shares pledged by promoter Ramalinga Raju came to be off-loaded by lenders in the market causing some pressure on prices of the Satyam stock, eventually leading to revelations on falsification of accounts of the company.

It is not clear if the disclosures currently available in the public domain constitute the full and complete picture of disclosure of all such pledges. The fact that some date as far back as 2001 suggests that the extent of compliance is perhaps not hundred per cent.

Also, it is not clear if companies are expected to give a ‘nil’ disclosure if their promoters have not pledged any shares owned by them.

But the public sector GAIL (India) Ltd is not taking any chances. It has informed the National Stock Exchange, where its shares are listed, “President of India, as a Promoter who is holding 72,74,05,675 equity shares in the company, representing 57.35 per cent, has not pledged any shares”.

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