Market fall adds to pressure tycoons to sell stakes

Bloomberg | Updated on March 11, 2020

India’s cash-strapped tycoons may need to ready for more yard sales of their crown jewels as stock volatility and ongoing credit market uncertainty pressure their ability to pay loans.

At issue is the loans that Indian business leaders often take against the backing of their main assets – stakes in their listed firms.

The value of such pledged shares has shrunk as the coronavirus outbreak triggered a sell-off globally in risk assets and domestic credit troubles deepened, as evidenced by last week’s seizure of Yes Bank by the central bank. The BSE Sensex Index declined 15 per cent since setting a record high in January.

That’s placing more pressure on tycoons looking to refinance. Founders at 811 Indian companies have pledged shares worth 1.8 trillion rupees ($24.4 billion) as collateral, according to Bombay Stock Exchange data as of March 9.

Fall of companies

In the aftermath of the September 2018 default of shadow bank Infrastructure Leasing & Financial Services Ltd, media mogul Subhash Chandra was one of several founders forced to sell shares in order to repay company debt. Others include Yes Bank founder Rana Kapoor, the founders of the Emami group, and Anil Ambani, who now claims poverty as banks continue to see repayment of defaulted loans.

Tycoons had largely relied on loans from shadow banks and mutual funds until the collapse of IL&FS. In the aftermath of the crisis, non-bank institutions have cut back on fresh loans as they grapple with their own liquidity problems, leaving corporate founders with fewer refinancing alternatives. Mutual funds have also pulled back, after rules on such loans were tightened.

While foreign lenders including Deutsche Bank have since stepped in to partially fill the gap, their terms are often more demanding, with higher collateral demands and costlier interest rates.

Published on March 11, 2020

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