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As debt woes rise, promoters are losing their companies to lenders

image Promoter holding in many companies has gone down as shares pledged by promoters are invoked by lenders

In CG Power and Industrial Solutions, the company where a multi-level financial fraud has been reported, the promoter – Gautam Thappar – and his group companies have no stake at all, as per the shareholding data from BSE for the June 2019 quarter.

Only a year back, Thappar’s Avantha Group had 34.38 per cent stake in the company. Apparently, the promoter pledged all his shares with banks and borrowed money, but couldn’t repay it. So, different lenders at different points in time had invoked the pledge, resulting in Avantha Group having to forego all its shares in CG Power.

This is not the story of just one company in India Inc. In recent times, there have been many cases where promoters of even large companies have lost their shares to lenders, after they invoked the pledged shares.

There have also been some cases where promoters themselves have encashed their shares by selling them in the open market or to institutional buyers to meet the debt obligations of the company. A case-in-point here is the home-grown FMCG firm, Emami, where promoters have sold shares to repay lenders. They had taken on debt in their personal capacity to fund group firms. In the June 2019 quarter, the promoter group holding in Emami was 52.74 per cent. This is down from 72.74 per cent in June 2018 quarter.

In the June 2019 quarter, of the Nifty 500 companies, 178 saw promoters’ stakes drop from a year ago, according to data from BusinessLine has observed that in more than a handful of cases, the fall in promoter stake was because lenders had sold the pledged shares of promoters. This includes Anil Ambani’s companies - Reliance Communications, Reliance Power, Reliance Capital and Reliance Infrastructure - and Cox & King’s.
Selling of pledged shares by lenders

In Reliance Communication, Reliance Capital and other ADAG companies, after the news of the company approaching NCLT for invoking insolvency was announced, lenders sold the shares pledged by the promoter. In Reliance Communication, the Ambani family members’ and group companies’ holdings has come down to 21.97 per cent from 52.96 per cent a year earlier.

In the case of Cox & King’s, a 260-year old company owned by the Kerkar family, the lender sold shares of the company after it defaulted on commercial paper payments. The promoter group stake in the company has come down to 39.73 per cent from 49.34 per cent a year back....................................BL