Living on a pledge

After the Satyam episode, much attention is paid to what promoters are doing with their personal shareholding. With Sebi making it mandatory for companies to disclose details about pledged shares, it’s added a new “risk factor” to stocks. If a promoter has pledged a substantial part of his stake — things are not hunky dory and the stock has an added price risk. Unfortunately, critical information on why the company has pledged shares (whether it is to meet corporate needs or for personal finances) that can colour how you view a pledge, is not a necessary disclosure. 

But what the heck, financiers have hardly taken a tough stance with defaulting promoters till date in this country. Often, unscrupulous lending either ends up with the financier going bust or if it is a public sector institution, the imprudence is bankrolled with taxpayer’s money. Financiers have hardly shown initiative to improve governance nor have they voted with their feet to safe-guard shareholders interest.

In the absence of such activism, the main takeaway from rising promoter pledges is that it is an outcome of a rapidly deteriorating business environment. High rates are bad, but business conditions that ensure promoters can’t revoke their pledges is much worse. There are also a few instances of companies trying to use pledge as a backdoor exit, or as a last-ditch attempt to spike up the stock price to raise the value of the company. 

Talking of a slowdown, we have a story on how times have soured for companies in the power equipment business. Power was one sector that promised sure-shot growth in the infrastructure space till some time ago. But with power projects getting stuck because of issues like fuel linkages and land acquisition, equipment makers are seeing order books shrink. Do they have a Plan B?

Another interesting story is Speciality Restaurants — yes, the same company that owns popular eating chain Mainland China. Wanting to mimic the investor popularity of Shyam Bhartia-owned Jubilant Foodworks, Anjan Chatterjee has dared to come out with a public offer despite an inhospitable market. Predictably, the retail portion of the offer has been undersubscribed but institutional demand has made up for the shortfall. The question is, post listing, can Speciality create as much buzz as Jubilant did? Read What's so special? to know more