Rising trend in pledging patterns :: Business Line,

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A tightening liquidity appears to be squeezing not only companies but their promoters as well, going by the shares they have pledged to raise funds. The proportion of pledged shares in promoter holdings has been steadily rising.

Considering the companies with pledged shares, in the BSE 500, about 29 per cent of promoter holding or 16 per cent of the total holding is currently being pledged. Four in every ten stocks have seen a hike in the percentage of shares pledged in the September '11 quarter. Further, in about a third of these companies, such rise in pledging has been the norm for the past three quarters.

STEADY UPHILL

For example, Aban Offshore's promoter group had pledged 30 per cent of their holdings in the December '10 quarter. By dint of regular increases, the promoter group now has 37 per cent of their holding encumbered.

Underlining the trend, the number of companies whose promoters have pledged the majority of their holdings has also been on a steady rise. In the December '10 quarter, less than two in ten companies had promoters pledging over 50 per cent of their shares. That has increased to over three in ten companies by the September '11 quarter. In Aqua Logistics, for example, the promoters pledged 23 per cent of their shares last December; this rose to 57 per cent by end-September. There were also a handful of companies where the opposite happened — the shares pledged in December '10 were revoked to bring the pledged holding to nil by the September '11 quarter.

MARKET PERFORMANCE

While promoters have been increasingly raising money on the strength of their shares, the reasons for which the money is being raised are not always discernible. There is also no particular sector which has seen a concentration of high pledging. However, stocks could face severe volatility should the promoters be unable to meet payments. Markets have accordingly been quite savvy, punishing for the most part stocks that have seen big jumps in pledged shares.

Consider Mercator Lines for example. Sixt five per cent of the promoters' shares are now pledged. The figure was 44 per cent a quarter ago and 16 per cent at the start of this calendar. The stock has dropped 61 per cent from January. Similarly, OnMobile Global has seen a steady rise in pledged shares over the past four quarters. The stock has shed 58 per cent from the start of this year. In proportion to the market as a whole, though, at 9.7 per cent, pledged shares don't account for much. This figure is up only a shade from the 9.2 per cent in the December '10 quarter.