Cos whose promoters have pledged their shares

CNBC-TV18’s Varinder Bansal reports on the details of companies where promoters have pledged significant number of their shares.

SRF is one company where SRF Polymers had pledged nearly 18% equity with Kotak Mahindra Prime and Cholamandalam DBS Finance. SRF Polymers has been pledging shares since the beginning of the year. Since the beginning of the year prices of most of the midcap companies have come down by 70–80%. Importantly, if one just looks at the 52-week high for this is around Rs 184 and the low was around Rs 66.

One important thing that has also come up with SRF is that there was a consolidation that took place that has raised many eyebrows. Just to give a gist, SRF bought nearly two businesses of SRF Polymers for nearly Rs 151 crore. These two businesses if you see on FY08 basis, they were loss making businesses. EBITDA was negative Rs 1.7 crore and FY08 net loss was nearly Rs 14 crore.

Also importantly, what the market was talking is that SRF Polymers had pledged around 18% equity with financial institutions and they were unable to pay the margin call. They couldn’t raise money because it is a loss making company. Now they have to take help from SRF.

SRF now will be raising money because they are buying these two businesses of SRF Polymers and this money they will be getting from their internal accruals as well as from their debt.

The company’s spokesperson clearly told us that the deal was only to capitalise on the plastics business that they thought would be very good going ahead and expect the EBITDA to be positive going ahead. But the market is questioning this.

The other company is Sobha Developers. There are many other companies that have pledged their shares. The promoters have pledged nearly 24.5% equity with Bank Sarasin and Credit Suisse. But promoter holding in this company is nearly 87%. But the company’s spokesperson told us that the promoters still have a good share of the equity and hence there is nothing to bother.

But at the price at which it was bought, the price has come down 80–90%, the pressure that could come from the lenders. The number of shares pledged with Bank Sarasin is 1 crore shares, which is around 37.5% and also 78 lakh shares with Credit Suisse, which is around 10% equity. The stock has again fallen nearly 70–80% since the pledge of the shares. The 52-week high of this share is nearly Rs 980 and the 52-week low was Rs nearly 80. The IPO came at a price of Rs 640. And now you can imagine that the stock is trading around Rs 90 per share.

It is normal practice that is followed by most promoters. The problem comes when share prices come down drastically and promoters are unable to pay margin calls, which we have seen in the case of Orchid. But one should not weigh all these companies at the same level.