Promoter pledging has been on the decline in recent times for six consecutive quarters. According to an analysis report by Kotak Institutional Equities of BSE-500 companies, the pledged holdings as a percentage of promoter holdings declined to 0.84 per cent in the December 2024 quarter from 0.87 per cent in the September 2024 quarter. The value of pledged promoter holdings stood at Rs 1.63 trillion. This represents just 0.4% of the total market capitalisation BSE-500 companies.
Pledging of shares essentially is an option that promoters use to borrow money. The shares are used as collateral and instead of completely selling them. While this process allows promoters to raise funds, the pledged shares can be sold by the lender if the promoters fail to repay the loan. Pledging of too many shares is also seen as a negative, in terms of investor sentiment. Few risks involved are:
Negative market perception: High promoter pledging is often seen as a sign of financial distress (on part of the promoter) and may lead to negative investor sentiment.
Stock price volatility: If a large portion of shares is pledged and the price falls, lenders may sell shares, leading to a further potential decline.
Loss of control: If lenders sell pledged shares, promoters’ ownership percentage decreases, risking control over the company.
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Earlier this month, the promoters of Aster DM Healthcare reduced their share pledge from 99 per cent to 41 per cent after completing a debt refinancing transaction from top-tier global financial institutions. The new lenders for the company included JPMorgan, HSBC, and Barclays that provided fresh funding, enabling the company promoters to refinance its existing loans at better terms as well as loan-to-value (LTV).
Does SEBI have a role here?
While SEBI regulates the pledge of shares of a listed company, there are no restrictions for unlisted companies. For an unlisted company, passing a board resolution is usually enough for the pledge of shares.
Here are a few companies with high promoter pledge…
Vedanta: As of December 2024, nearly all of the shares – 99.99 per cent – held by the promoter group of Vedanta were pledged as collateral for various financing arrangements,
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