As many as 246 companies have pledged more than 50% of their holdings, which includes United Spirits, Pantaloons Retail, Wockhardt and Unitech. The value of pledges has fallen this quarter

According to Morgan Stanley’s analysis a third of 767 companies have pledged more than 50% of their holdings. This is a high figure in corporate India and an indicator that promoters and their companies are in need for cash. Also, share pledging as percentage of market capitalisation has increased the latest quarter (June 2012) over the previous quarter (March 2012) by 11% while the value of the shares has fell by 9%. The report said, “The pledged value as a percentage of the market cap of these companies is marginally above its March 2012 lows—at 9.8% (up 11bps Q-o-Q). Its share in India’s market cap increased a tad from 2.05% in March 2012 to 2.08% in June 2012.”
 

As many as 17 companies have pledged their entire promoter holdings. The include Thomas Cook (India), Essar Shipping, Tuticorin Alkali, Asian Hotels. Some of the prominent companies to have pledged almost their entire promoter holding are United Spirits (98% & $439 million), Pipavav Defence (97% & $439 million), Wockhardt (87% & $1,176 million), Essar Oil (86% & $194 million), Unitech (72% & $360 million), Pantaloon Retail (67% & $222 million). Those which have increased their share pledging this quarter were V2 Retail, Hotel Leela Ventures, Pantaloon DVR, KS Oils and BL Kashyap, to name a few.
 

Share pledging is the act of obtaining a loan by a company promoter in lieu of shares owned. It shows that the company is struggling and needs cash. It may have no other collateral other than its own shares.
 

Furthermore, with regard to the value of the shares, the report titled “Tracking Promoter Pledging: What’s at Stake?” said, “Marked to market, as per the previous day’s close (20^th August), the pledged value of shares was roughly $22 billion, down 9% Q-o-Q without accounting for any subsequent changes that may have happened to the number of shares pledged. In rupee terms marked to market, the pledged value of shares was roughly Rs1.27 trillion, down 0.5% Q-o-Q. As share value goes down, banks will ask promoters to pony up more shares or ask them to put other form of collateral or cash.  
 

The sector which has the maximum amount of share pledged is consumer discretionary ($4,273 million; 197 companies) followed by Materials ($3,597 million; 205 companies). Consumer discretionary also takes the title for being the sector with the largest amount of share pledged (19%) as portion of total share pledged. The least is energy, with just 2% of the total amount pledged (and seven companies only). The financial sector formed the largest group, in terms of value of shares pledged as a percentage of market capitalisation (20.8%; 77 companies), and Information Technology being the lowest (4.5%). As percentage of promoter holding, as much as 70% of the energy sector shares were pledged.