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After the buildup and the crash-course in my last post, here is my post analysing Promoter Financing market in India. The analysis attempts to explain the slowdown in promoter financing in India and brings out some interesting facts. Read on to know more. Thread 1/12
As per BSE data, the aggregate value of promoters' pledged shares was ~1.85 lakh crore as at Aug 23, 2019. In comparison, the value of promoters' pledged shares stood at ~Rs 2.5 lakh crore as at Aug 30, 2018. The fall in pledge levels indicate slowdown in promoter financing. 2/12
An ET article (July 22), observed that 'pledging of shares by promoters of NSE companies dropped to a six-year low'. Another ET article (Aug 15), noted that 'interest rates on loans against shares (LAS) have surged by about 300 basis points in the past 3 months'. 3/12
This post is a crash course on promoter funding, which serves as a bedrock for my next post.
Promoter funding/ financing, is the colloquial term used for raising of debt funds by Promoters of companies usually against the security/ comfort of shares. Thread 1/13
Promoter funding/ financing, is the colloquial term used for raising of debt funds by Promoters of companies usually against the security/ comfort of shares. Thread 1/13
A promoter, many a times, needs money for (a) equity infusion in a new/ growing business, (b) personal use (c) enhancing stake in established business (d) family settlement etc.
If he doesn't have enough cash at his disposal, he borrows from finance firms. 2/13
If he doesn't have enough cash at his disposal, he borrows from finance firms. 2/13
The most liquid and widely accepted collateral/ security for these borrowings are shares of established (usually listed) companies.
These shares are pledged to the financing firm (or a trustee) to avail of the debt facility. 3/13
These shares are pledged to the financing firm (or a trustee) to avail of the debt facility. 3/13
