Domestic mutual fund companies have witnessed a significant decline in the exposure to promoters' pledged shares in the quarter ended 31 March 2019, reveals a report. The report from nseinfobase.com also mentions that the decline in pledging by promoters is at a six-year low. In addition, during the quarter, in 28 companies, 100% of the promoters shares were pledged. SB Adani Family Trust, promoter of Adani Ports and Special Economic Zone Ltd, turned out to have carried out largest pledge transaction as well as largest release during the March quarter.
As per nseinfobase.com, a joint initiative of National Stock Exchange (NSE) and Prime Database group, the share of domestic mutual funds, including cases where trustee names are reported, declined to 34.78% as on 31 March 2019 from 38.22% as on 31 December 2018, with the value of such pledged shares coming down to Rs78,205 crore from Rs89,341 crore. Non-banks or others, on the other hand, saw a considerable increase to 44.83% from 38.61% during the same period, while the share of Indian banks remained fairly constant, the report says.
In terms of the pledgees or entities in whose favour pledge is created, the maximum amount of shares was pledged to different subsidiaries of Kotak Group. The other companies followed by Kotak group were: Citicorp Finance (India) Ltd, Yes Bank Ltd, HDFC (with its several arms) and Credit Suisse Finance (India) Ltd.
Decline in pledging at a 6-year low
On the whole, pledging of shares by promoters in companies listed on NSE reached a six-year low during the quarter ended March 2019. The quantum of promoters’ holding went down to 10.41% in March 2019 from 12.85% in the previous quarter. In the terms of value, the pledged shares went down to Rs2.25 lakh crore as on March 2019 from Rs2.34 lakh crore in December 2018. In terms of market-capitalisation too, promoters' shares pledged dipped to 1.52% in March from 1.65% in previous quarter.
As on 31 March 2019, astonishingly, there were 28 companies in which the complete holding (100%) of the promoters' shares was pledged, the report says.
Similarly, there were 87 companies in which more than 90% of the promoters’ shareholding was pledged. In 204 companies, including big names like Reliance Infrastructure, Reliance Capital, and Zee Entertainment Enterprises among others; 50% of the promoter’s shareholding was pledged during the March quarter.
Increase in Pledges
A few top companies went from zero percent to a high percent pledging in the last quarter as well as there were eight companies in which the promoters pledged their shares for the first time after a span of four years.
Decrease in Pledges
The were 12 companies in which pledged shares were reduced to zero. Also the number of companies in which the promoter’s holding declined was 130. Some of the names that fall within the list of companies that saw decrease in the pledging were: Indusind Bank, Jubilant Foodworks, Edelweiss Financial Services and Tata Motors.
The largest pledge transaction for the quarter beginning January was that of SB Adani Family Trust, promoter of Adani Ports and Special Economic Zone Ltd pledging 4.09 crore shares on 27 March 2019 to Copthall Mauritius Investment Ltd, with the value of the shares being Rs1499 crore. Apart from pledging shares, the largest release of pledged shares was also done by the same Trust on 7 February 2019, with 4.20 crore shares amounting to Rs1397 crore were released from Catalyst Trusteeship Ltd.
Invocation of Shares
Invocation of pledged shares refers to the transfer of pledged shares in the pledgee’s account and, consequently, their sale the open market. Invocation generally takes place when large numbers of shares have been pledged by the company. Along with the fall in price of market value of shares, the other reason that could lead to invocation is violation of any provision in relation to agreement. Shares of nearly 29 companies were invoked during the last quarter with Reliance Power being the company in which maximum value of shares were invoked.