Promoter Share Sales Here To Stay In 2020

2019 was a year when the promoters of many blue-chip companies put up their family silver for sale. Will 2020 be a repeat?

Silver and gold bars of different weights sit in a display case at the Pro Aurum KG precious metal vaults in Munich, Germany. (Photographer: Michaela Handrek-Rehle/Bloomberg)
Silver and gold bars of different weights sit in a display case at the Pro Aurum KG precious metal vaults in Munich, Germany. (Photographer: Michaela Handrek-Rehle/Bloomberg)

After a year that saw some of India’s top business tycoons lose control of their companies as lenders invoked shares offered as collateral against debt, 2020 could see more of that.

That’s because controlling shareholders of at least 50 Indian companies have pledged nearly all their holdings, according to data on the BSE. And they contribute more than half of Rs 2.21 lakh crore worth of shares pledged by Indian promoters as on Jan. 6.

Shares of these firms are at a higher risk of coming under selling pressure in case of any concerns over debt.

Anil Ambani, Subhash Chandra, and Rana Kapoor lost control of their companies last year as they either divested stake in companies or lenders sold shares offered as collateral to cover borrowings. In all, promoter shares worth over Rs 53,000 crore were sold last year to either cut debt or invoke collateral, according to Prime Database. That’s because raising capital was difficult as a liquidity crunch stemming from 2018’s IL&FS crisis dried up funding. Some of those concerns persist as debt investors and lenders have turned selective.

Promoters may sell equity instead of taking on more debt before the market depresses value, Satyen Shah, head of investment banking at Edelweiss Financial Services, said citing 2019 as a lesson when stocks came under pressure because of debt against shares. Many of the companies have had a strong operational performance and there is investor appetite at these valuations, said Shah.

As on Jan. 6, promoters of 745 companies listed on the BSE have pledged shares worth Rs 2.21 lakh crore, according to exchange data.

  • Of these, controlling shareholders of 179 companies—from group A and B categories—have offered more than 35 percent of their holdings each as collateral. Put together, these are worth Rs 1.43 lakh crore.
  • Promoters of 50 such companies account for 93 percent of the pledge value aggregating Rs 1.34 lakh crore.

To be sure, not all these shares have been pledged by promoters to raise debt for personal purposes. In many of these instances, they have offered personal holding as collateral against capex funding for the listed entity.

Debt Woes

Promoters who lost control or sold shares to pare debt in 2019:

Anil Ambani

  • Sold stake in profitable asset management firm to partner Nippon Life Insurance Co. to repay debt.
  • Lenders sold pledged shares of companies like Reliance Power after the group defaulted on interest payments.

Subhash Chandra

  • Sold almost entire promoter holding in broadcaster Zee Entertainment Enterprises Ltd. to cut personal debt.

Rana Kapoor

  • Sold all stake in Yes Bank Ltd. to pare debt of his family office even as the lender struggled to raise capital.

VG Siddhartha

  • Committed suicide as debt became unmanageable and tax officials sought probed business dealings. His family is now trying to divest assets of Coffee Day Enterprises Ltd. to pare debt.

Emami Promoters

  • The Agarwals and the Goenkas of Emami sold 10.5 percent of their stake to reduce debt.

Kushagra Bajaj

  • Chairman of the Bajaj Group sold 29 percent in Bajaj Consumer Care Ltd. to pare debt and revoke pledged shares.

Watch | BQ’s Sajeet Manghat explain why promoter share sale are here to stay in 2020

Promoters Now More Alert On Pledging Shares: SEBI Chief Ajay Tyagi