Share pledging by realtors rises as stocks decline

With their stocks battered down to 52-week lows, real estate companies such as DB Realty, Parvsnath Developers, Ansal Properties, Orbit Corporation and others may be forced to cough up more collateral to safeguard shares pledged by their promoters, lest financial institutions come out and start selling the shares in the open market.

Recently, Morgan Stanley issued a notice to Unitech promoters for repayment of debt of Rs178 crore, failing which the fund house would sell the promoter and promoter entity shares in the open market.

Though Unitech managed to get a stay order from the Delhi high court against the notice, it had to cough up Rs89 crore and has to pay the remaining Rs89 crore by February 21.

Typically, promoters pledge shares as collateral to raise debt from financial institutions, either for the company or for their personal use.

The institutions typically look at a margin of 3-5 times the share value — in other words, the total value of the shares pledged should be 3-5 times the loan offered. If the share price falls below the margin at which the collateral has been placed, the promoter has to issue more collateral. If the promoter fails to do so, the institution can sell off shares in the open market to make good the shortfall.

According to data available from the country’s oldest bourse, the Bombay Stock Exchange (BSE), promoters of realty companies like Ansal Properties, Parsvnath Developers, Orbit Corporation, Unitech, Ackruti City, DS Kulkarni, Ansal Housing, D B Realty, Indiabulls Real Estate, Sobha Developers and Peninsula Land have pledged their shares with various institutions (see chart).

New Delhi-based Ansal Properties, promoted by Pranav Ansal, has pledged the highest number of promoter shares — at 98.03% — to raise money from financial institutions. It also did a share placement of Rs231 crore through qualified institutional placement (QIP) in November and paid off Rs223 crore in January. Presently, promoters hold 46.63% in the company. The company secretary couldn’t be reached for comment.

Next on the list is Parsvnath Developers Ltd, promoted by Pradeep Jain. As of end-December, the company had 83.75% of promoter shares pledged, up 6.25% compared with end-September. Repeated calls to the promoter went unanswered.

An analyst from a domestic brokerage said, “Ansal and Parsvnath have both done QIPs recently and also they have the maximum shares pledged in the realty index. Even Orbit keeps pledging, which is a concern. Most of the stocks have hit 52-week lows, which means they will have to increase their collateral on the debt. Otherwise, if share prices go down from here, we expect heavy selling from FIIs.”

Mumbai-based Orbit Corporation, promoted by Pujit Aggarwal and his father Ravi Kiran Aggarwal, had 77.22% (up from 67.67% at the end of September) of promoter shares pledged as of end-December. The promoters have pledged 20 lakh more shares with financial institutions on January 25.

Ramshriya Yadav, chief financial officer, Orbit Corp said, “When we pledged shares with IFCI etc, we have a margin of three times as far as Orbit is concerned. Till the time it has not hit `40 per share, there is no concern. Also, we have top-up available in case things go down. We are planning to redeem a chunk of these shares around the first quarter of next fiscal. It is in line with what we had planned and there is no cause of concern.”

Orbit currently has debt of Rs150 crore on its books.

An issue arranger from a domestic financial institution said, “Realty stocks were badly hit on November 26 after the LIC Housing scam and since then things are bad for developers. There is a lot of pressure on these guys to put more collateral.

So, if you notice, most of the promoters had to increase collaterals quarter on quarter. For Orbit, most of the pledging has been done for the Kilachand property, which is caught in a legal battle, so they need a better cash generating model to redeem them.”

Among others, Unitech promoters Sanjay Chandra and family had pledged 68.38% of their shares as of end-December.

Hemant Shah and Vimal Shah, the promoters of Ackruti City, also had 63.33% of their shares pledged, up 9.85 percentage points quarter on quarter. The promoters could not be contacted despite repeated attempts over the last three days.

The promoters of D B Realty have pledged 40.46% of their 64% stake in D B Realty.

Peninsula Land, promoted by Rajeev Piramal, has seen 12.86% of promoter shares pledged, up 2.58% quarter on quarter.

“Though the company does not have much debt obligation, it has never come out and said why it pledges shares. In fact, this has been a deterrent since investors first came to know about their pledging during the downturn.”