Companies need to be proactive with disclosure of pledging
When the regulator bares its teeth, which it has done post the embarrassment of Satyam, all are guilty till proven innocent. Market regulator Securities Exchange Board of India (SEBI) has enforced a directive to companies, which makes it mandatory for them to disclose the amount of equity that promoters have pledged over a certain period of time. Ever since the mandate came into being, numerous companies have come out in the open and disclosed details of their pledged equity. While Tata Group disclosed details of pledged shares of Tata Steel, TCS, Tata Power and Tata Teleservices (Maharashtra) Ltd.; Reliance ADA Group also divulged details of RCOM & R-Infra shares. Others like Kingfisher Airlines (43.8%), Shoppers Stop (33.10%), Unitech (49.48%), Parsvnath Developers (63.88%), et al, have also opened their accounts in public. So should investors be fearing more Satyam-like situations in the coming future?
In a bull run, excesses are not uncommon. But some of them do go over the top. The story of Tata’s excesses with Corus and JLR is well known. Habil Fakhruddin Khorakiwala, Promoter & Chairman, Wockhardt, is a stark example at the moment, who has pledged 43.11% stake of the company with IL&FS and IDBI. As slowdown looms and asset prices fall, the company is finding it difficult to service the debt (debt-equity ratio is currently 2.28:1) and they have kept their headquarters as a collateral and are also looking at selling some non-core assets. Wockhardt made some audacious acquisitions in the last two years and is now paying the price.
When the regulator bares its teeth, which it has done post the embarrassment of Satyam, all are guilty till proven innocent. Market regulator Securities Exchange Board of India (SEBI) has enforced a directive to companies, which makes it mandatory for them to disclose the amount of equity that promoters have pledged over a certain period of time. Ever since the mandate came into being, numerous companies have come out in the open and disclosed details of their pledged equity. While Tata Group disclosed details of pledged shares of Tata Steel, TCS, Tata Power and Tata Teleservices (Maharashtra) Ltd.; Reliance ADA Group also divulged details of RCOM & R-Infra shares. Others like Kingfisher Airlines (43.8%), Shoppers Stop (33.10%), Unitech (49.48%), Parsvnath Developers (63.88%), et al, have also opened their accounts in public. So should investors be fearing more Satyam-like situations in the coming future?
In a bull run, excesses are not uncommon. But some of them do go over the top. The story of Tata’s excesses with Corus and JLR is well known. Habil Fakhruddin Khorakiwala, Promoter & Chairman, Wockhardt, is a stark example at the moment, who has pledged 43.11% stake of the company with IL&FS and IDBI. As slowdown looms and asset prices fall, the company is finding it difficult to service the debt (debt-equity ratio is currently 2.28:1) and they have kept their headquarters as a collateral and are also looking at selling some non-core assets. Wockhardt made some audacious acquisitions in the last two years and is now paying the price.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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