MUMBAI: A recent equities report by stock brokerage Prabhudas Lilladher has picked eleven companies where promoters have raised money by pledging shares. As per the poll, the management of KEI Industries (currently trading 0.4% higher at Rs 10.72 ), Nagarjuna Construction (up 6.2% at Rs 52.75), Gayatri Projects (down 0.6% at Rs 95.10), Rolta India (up 2.4% at Rs 84.60), Great Offshore (up 13.7% at Rs 257.55). Bharati Shipyard (up 1.7% at Rs 63), Peninsula Land (up 1.9% at Rs 21), Shree Renuka Sugar (up 2.8% at Rs 72.15), Bombay Rayon (down 2.1% at Rs 93.10), Indage Vintners (up 4.8% at Rs 91) and XL Telecom (up 0.1% at Rs 37.60) have admitted to having pledged promoter shareholding for meeting various working capital needs.

Amongst companies that have reassured the brokerage of not having pledged any promoter shares are Hero Honda, Maruti Suzuki, M&M, ABB, Action Construction, Jyoti Structures, Sujana Towers, Gammon India, Hindustan Construction, IVRCL, Patel Engineering and Anant Raj Industries.

As for companies that have disclosed the percentage of shares pledged, KEI Industries and Nagarjuna Construction have pledged 6% and 12% respectively while Rolta India has pledged 2.5% to raise capital. Among shipping companies, Great Offshore and Bharati Shipyard have pledged 14.8% and 5.4% respectively. Real estate company Peninsula Land has pledged 14% while promoters of sugar manufacturer Shree Renuka Sugar has pledged 10%. Promoters of XL Telecom have pledged 20% while Bombay Rayon owners have kept shares aggregating to 1.4% as collateral for raising debt. As reported earlier by ET, investors may not very comfortable with promoters who have borrowed money to fund personal needs, or unrelated diversification. “If the promoter has borrowed money for long-term benefits of the company, investors shouldn’t be really worried. If the money is for personal use, or unrelated diversification, the stock will see a sell-off,” a Mumbai-based broker said.

“Disclosures about pledged shares will trigger a negative reaction from investors if it is revealed that the promoters are highly leveraged. It may also send out signals that the promoter is not financially strong,” said a senior executive of IL&FS, one of the largest promoter financiers in the country.

According to financiers, promoter financing (loan against shares) was rampant till a year ago when funds were cheap. Promoters simply pledged a part of their holdings in the company for a set term and interest rate. The tenure of the loan – mostly short-term – would vary between three months to two years, at an interest rate in the range of 20-30% per annum.

source: Economictimes

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