Promoters groups have pledged more than 90% of their holdings in 27 companies, disclosure made by 467 listed firms. Famous few companies, promoters of which have pledged shared, are Kirloskar Electric, JP Hydropower, Unitech, Parsvnath, Tata Teleservices (Maharashtra), India Cements Capital etc.
Let us understand what is the system. Lenders give about 60% against the value of the shares pledged. If the market value falls then more shares are asked for else the promoters have to pay the difference between 60% of market value of shares and money borrowed. That means at any time the costs of shares of the lender is 60% of the market value.
Now the question is why do promoters pledge shares?
In some cases shares are pledged for need of working capital. That means all the funds raised by the company are blocked in inventory or may be debtors are not paying their dues. In any of the situations, companies financial conditions are not reliable.
Sometime promoter pledges shares for getting funds for personal use. Does it mean the promoter's expenses are so, that his company directors do not allow him to withdraw more. Isn't it ridiculous ?
In a normal situation, when a common man need money for say medical expenses, and if one has to mortgage gold the lender charges 4% per month. Do the lenders against pledged shares charge such an interest ? If yes, the company / promoter must be in bad need of money. If no, then why does lender take the risk ?
Sometime shares are pledged to take over other company. In that situation it is okay.
None of the companies included in the above survey, disclosed neither the lender not rate of interest.
Let us understand what is the system. Lenders give about 60% against the value of the shares pledged. If the market value falls then more shares are asked for else the promoters have to pay the difference between 60% of market value of shares and money borrowed. That means at any time the costs of shares of the lender is 60% of the market value.
Now the question is why do promoters pledge shares?
In some cases shares are pledged for need of working capital. That means all the funds raised by the company are blocked in inventory or may be debtors are not paying their dues. In any of the situations, companies financial conditions are not reliable.
Sometime promoter pledges shares for getting funds for personal use. Does it mean the promoter's expenses are so, that his company directors do not allow him to withdraw more. Isn't it ridiculous ?
In a normal situation, when a common man need money for say medical expenses, and if one has to mortgage gold the lender charges 4% per month. Do the lenders against pledged shares charge such an interest ? If yes, the company / promoter must be in bad need of money. If no, then why does lender take the risk ?
Sometime shares are pledged to take over other company. In that situation it is okay.
None of the companies included in the above survey, disclosed neither the lender not rate of interest.
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