Reduction of leverage to ease promoters’ pressure; Q2 may see more reduction
Mumbai: In addition to the Good news of financial package announced by the Finance Minister (FM) Nirmala Sitharaman on Friday evening, one more piece of encouraging development that has come to light. The promoters’ pledged shareholdings have come down in the first quarter ending June 30, 2019 (Q1FY20). This was revealed in a study carried out by Kotak Institutional Equity (KIE) Research of shareholding patterns of BSE-500 companies.
KIE said, our analysis of pledged holdings of BSE-500 stocks shows that the percentage of pledged promoter (majority shareholder) holdings by value has come down in the June 2019 quarter in comparison to the March quarter. The percentage of pledged promoter holdings declined to 2.47 per cent in the June 2019 quarter compared to 2.83 per cent in March 2019 quarter.
Outstanding promoters pledged shares were Rs 1.73 lakh crore, which is about 1.21 per cent of the total BSE-500 Index’s market capitalization at end-June 2019. Promoters of 112 companies pledged their holdings among BSE-500 Index, KIE said.
Dr VK Vijayakumar, chief investment strategist, Geojit Financial Services said, “Excessive leverage of companies with their promoters pledging their holding was a major issue. Now, with the excessive leveraging coming down gradually, it should ease the promoters’ pressure from raising more resources for the various needs of the companies. In this context reduction in promoter pledge is a positive development”.
Analysts said, the package announced by the FM will play crucial role in creating conducive atmosphere in the market and will have its positive impact on the market sentiment. With the revival in the sentiment, the market fall will be halted to a greater extent. This will help in further reduction of promoters’ pledged shareholding at the end of Q2FY20.
KIE Research said, four companies had more than 90 per cent of their promoter holdings pledged. The study clarified that pledging of shares does not necessarily imply that a company or a promoter is under financial stress; banks (lenders) could have sought additional security in the form of promoter shares, it added.
The report compares changes in pledged holdings between March 2019 and June 2019 quarters. Changes in pledged holdings post June 2019 have not been incorporated in this report.
Highlights of June 2019 pledged holding disclosures
· Companies whose promoters pledged more than 95% of their holdings: Reliance Infrastructure, Gayatri Projects and Reliance Capital.
· Highest increase in pledged promoter holdings: Eveready Industries, Lemon Tree Hotel, Orient Electric, Chambal Fertilisers and Jindal Steel and Power.
· Companies in which pledged promoter holdings declined: CG Power and Industrial, Sterlite Technologies, Indiabulls Real Estate, Himatsingka Seide and India Cements.
· Fresh promoter pledges: Lemon Tree Hotel, Orient Electric, Teamlease Services, GHCL
· Companies in which promoters revoked/creditors invoked entire pledged holdings: CG Power and Industrial, Sterlite Technologies, Indiabulls Real Estate, Himatsingka Seide, Indiabulls Housing Finance, Advanced Enzyme.
· Companies in the Nifty-50 with more than 5 per cent of pledged promoter holdings: Adani Ports & SEZ (32.1 per cent), Asian Paints (12 per cent), IndusInd Bank (26.3 per cent), JSW Steel (49.1 per cent), Sun Pharmaceutical (11 per cent), Zee Entertainment (64 per cent).