Promoter share pledge at a 3-year high
Pledging of shares by promoters in companies listed on NSE reached a three-year high of 1.86 per cent of total market capitalisation.
The last time it was higher was on April 30, 2017 at 1.88 per cent, as per prime info base, an initiative of Prime Database.
In value terms, promoters’ share pledging increased by a huge 55.97 per cent from last month with the value of pledged shares going up to Rs 2.77 lakh crore as on August 31, compared to Rs 1.78 lakh crore as on July 31, according to Pranav Haldea, Managing Director, PRIME Database Group.
According to Haldea, “this increase was primarily driven by pledging of shares by promoters in Hindustan Zinc and Vedanta for the purpose of the delisting of Vedanta”.
As on 31st August 2020, shares were pledged in 463 of the 1,656 main-board companies listed on NSE, as compared to 461 companies on July 31.
High pledge levels are typically not considered a good sign by the investors as a downturn in the market price can lead to invocation and change in management.
Surprisingly, there were as many as 29 companies in which the complete holding (100 per cent) of the promoters was under pledge.
At another level, there were as many as 81 companies in which more than 90 per cent of the promoter’s shareholding was pledged and 192 companies in which more than 50 per cent of the promoter’s shareholding was pledged.
SEBI at its board meeting held on in June 2019 had mandated that where pledging of promoters (and PACs) is more than 20 per cent of the total share capital of the company or 50 per cent of the Total Promoter Holding, promoters shall be required to disclose detailed reasons for encumbrance separately. As on August 31, there were 230 such companies listed on NSE.
Companies which moved from zero per cent to some per cent pledging of promoters’ holding from July to August were Hindustan Zinc (to 100), Vedanta (to 99.99) and Max Healthcare Institute (to 13.35). Overall, there were 13 companies in which the percentage of promoter holding pledged increased in August.
There were 2 companies in which pledged shares were brought down to zero in August 2020, these being Tirupati Forge (from 47.92) and Jyothy Labs (from 6.58). Overall, there were 51 companies in which the percentage of promoter holding pledged decreased in August 2020.
The pledge creation transactions (fresh or additional pledge) took place in shares of promoters of 29 companies worth a huge Rs 90,353.22 crore in August, while in July it was 28 companies worth Rs 6,402.26 crore.
In 21 of these 29 companies, promoters also had released their shares worth Rs 6,769.04 crore in August.