Pledging of shares by promoters of NSE-listed firms hits 3-year high

Pledging of shares by promoters has risen toa three-year high, according to primeinfobase.com, an initiative of Prime Database Group. The value of shares pledged by promoters of the National Stock Exchange listed companies surged 56 per cent to ₹2.77 lakh crore as on August 2020, compared to ₹1.78 lakh crore as on July 2020, the study by primeinfobase.com showed..

Pledging of shares by promoters in the NSE-listed firms reached 1.86 per cent of the total market capitalisation in August, making it the highest in three years, according to the report. Prior to that, it had hit a high of 1.88 per cent in April 2017.

“This increase was primarily driven by pledging of shares by promoters in Hindustan Zinc and Vedanta for the purpose of the delisting of Vedanta,” said Prime Database Group Managing Director Pranav Haldea. As of August, shares were pledged in 463 of the 1,656 main-board firms listed on the NSE, compared to 461 companies in the preceding month-end.

High level of pledging

High pledge levels are typically not considered a good sign by the investors as a downturn in the market price can lead to innovation and change in management. There are as many as 29 companies in which 100 per cent of the promoters was under pledge as of August 2020.

There were 81 firms in which more than 90 per cent of the promoter''s stake was pledged and 192 companies in which over 50 per cent of the promoters’ holding was pledged.

“Pledging of shares by promoters in companies listed on the NSE reached a 3-year high of 1.86 per cent of the total market capitalisation of all companies listed on the NSE as on August 31, 2020,” the report noted.

In June 2019, SEBI had mandated that where pledging of promoters (and persons acting in concert) is more than 20 per cent of the total share capital of the company or 50 per cent of the total promoter holding, promoters will be required to disclose detailed reasons for encumbrance separately. In August, there were 230 such companies listed on the NSE.

Companies that 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), the report noted.

Overall, there were 13 companies in which the percentage of promoter holding pledged increased in August. There were two companies -- Tirupati Forge and Jyothy Labs -- in which pledged shares were brought down to zero in August, it added. Overall, there were 51 firms in which the percentage of promoter holding pledged decreased in the month.