Promoter pledging has been on the decline in recent times for six consecutive quarters. According to an analysis report by Kotak Institutional Equities of BSE-500 companies, the pledged holdings as a percentage of promoter holdings declined to 0.84 per cent in the December 2024 quarter from 0.87 per cent in the September 2024 quarter. The value of pledged promoter holdings stood at Rs 1.63 trillion. This represents just 0.4% of the total market capitalisation BSE-500 companies.
Pledging of shares essentially is an option that promoters use to borrow money. The shares are used as collateral and instead of completely selling them. While this process allows promoters to raise funds, the pledged shares can be sold by the lender if the promoters fail to repay the loan. Pledging of too many shares is also seen as a negative, in terms of investor sentiment. Few risks involved are:
Negative market perception: High promoter pledging is often seen as a sign of financial distress (on part of the promoter) and may lead to negative investor sentiment.
Stock price volatility: If a large portion of shares is pledged and the price falls, lenders may sell shares, leading to a further potential decline.
Loss of control: If lenders sell pledged shares, promoters’ ownership percentage decreases, risking control over the company.
Earlier this month, the promoters of Aster DM Healthcare reduced their share pledge from 99 per cent to 41 per cent after completing a debt refinancing transaction from top-tier global financial institutions. The new lenders for the company included JPMorgan, HSBC, and Barclays that provided fresh funding, enabling the company promoters to refinance its existing loans at better terms as well as loan-to-value (LTV).
Does SEBI have a role here?
While SEBI regulates the pledge of shares of a listed company, there are no restrictions for unlisted companies. For an unlisted company, passing a board resolution is usually enough for the pledge of shares.
Here are a few companies with high promoter pledge…
Vedanta: As of December 2024, nearly all of the shares – 99.99 per cent – held by the promoter group of Vedanta were pledged as collateral for various financing arrangements, according to screener.in. Vedanta, a multinational mining company with a market cap of Rs 18,0151.67 crore, has been in focus on its founder Anil Agarwal’s positive commentary on the conglomerate’s growth outlook and demerger plans. In a letter to stakeholders, Agarwal outlined Vedanta’s strategy to leverage India’s natural resources sector and enhance shareholder value through the proposed demerger. He emphasized the goal of building a ‘high-growth business,’ stating that each of the four newly demerged companies has the potential to grow into a $100 billion company. Earlier last month, Vedanta’s creditors as well as shareholders approved the division of the mining major into five businesses, aimed at simplifying structure and reducing debt burden. Anil Agarwal said that the company expects the National Company Law Tribunal (NCLT) to approve its proposed demerger within the next 4-6 weeks.
Here are the five entities the company intends to demerge into:
Vedanta will retain the base metals operations, including copper and zinc businesses.
Vedanta Aluminium will be dedicated to aluminium production and processing.
Vedanta Oil & Gas will encompass the company’s oil and gas exploration and production activities.
Vedanta Power will manage power generation assets.
Vedanta Iron and Steel will be focusing on iron ore mining and steel production.
For the fiscal third quarter, Vedanta had posted a 70 per cent surge in net profit at Rs 4,876 crore as compared to the same period last year. Revenue for the quarter stood at Rs 39,115 crore, up 10 per cent on-year.
Hindustan Zinc: Hindustan Zinc’s promoter Vedanta has pledged 93.50 per cent of its holdings as collateral, data from screener.in stated. Hindustan Zinc, India’s largest integrated producer of zinc, lead, and silver with a market cap of Rs 19,1847.19 crore, is a subsidiary of Veanta Limited and contributes to approximately 75 per cent of the country’s zinc output. While Vedanta holds 64.92 per cent stakes in the company, the government of India holds 29.54 per cent of HZL’s equity shares. In November 2024, the government had announced its plans to sell a 2.5 per cent stake in Hindustan Zinc, valued at approximately Rs 5,334 crore, in its ongoing efforts to reduce its holdings in public sector enterprises.
During the third quarter of FY25, Hindustan Zinc reported a 32 per cent YoY growth in its net profit at Rs 2,678 crore, led by higher prices of zinc, silver and lead and a stronger dollar. As of December 31, 2024, the company’s total borrowings outstanding stood at Rs 12,270 crore and net debt stood at Rs 4,117 crore.
IndusInd Bank: As of December 2024, IndusInd Bank‘s promoters have pledged 50.86 per cent of their holdings as collateral for loans, showed screener.in. It raises much concern considering the ongoing fiasco at the private sector bank. IndusInd Bank has a market cap of Rs 53,945.32 crore. Earlier this month, IndusInd Bank disclosed a Rs 1,580 crore discrepancy in its derivatives portfolio, which, it had said, had a potential to hit its net worth by approximately 2.35 per cent as of December 2024. On this, the private sector lender’s share price had crashed 27 per cent on March 11, hitting the new 52-week low mark. However, later this week, the Reserve Bank of India (RBI) had said that the Bank remains financially stable and well-capitalised. Meanwhile, Ashok Hinduja, the Chairman of Hinduja Group of Companies, which is the promoter entity of IndusInd Bank, has shown confidence in the firm and reiterated full promoter support to the bank management and the board. While maintaining that IndusInd Bank has not sought any fresh capital, he said that its promoter has committed to infuse capital into the Bank in case there is a requirement.
For the fiscal third quarter, IndusInd Bank had reported a net profit of Rs 1,402 crore, down 39 per cent YoY. The net interest income (NII) stood at Rs 5228 crore, down 1.2 per cent on-year.
Sagility India: Sagility India’s promoter has pledged 100 per cent of the shares as collateral for loans. Its sole promoter, Sagility B.V., holds an 82.4 per cent stake in the company. The company that specializes in the healthcare technology solutions, has a market cap of Rs 20,181.30 crore. Sagility India was listed on the BSE and NSE on November 12, 2024. Earlier this year, Sagility LLC, which is a step-down subsidiary of Sagility India, completed the 100 per cent acquisition of BroadPath Healthcare Solutions, a US-based healthcare services company. The move, worth approximately Rs 502 crore, was aimed to diversify Sagility’s client base and enhance its service offerings.
For Q3FY25, the company posted net profit at Rs 217 crore, up 207.2 per cent YoY. Revenue, meanwhile, increased by 15.3 per cent YoY to Rs 1,453 crore compared to Rs 1,260 crore during the same period of previous financial year.