This is Pledge Creation.
Why do they pledge?
Pledge shares act as collateral hence it is Secured loan with INTEREST RATE LOWER than Unsecured loan thus saving money on interest.
Bank get collateral which lowers their risk (than unsecured loan) so if company fails to pay or any adverse situation arises, banks can sell the shares & recover money.
Margin -> Loan amount lent < Market price of shares pledged & act as security.
There is contract signed between promoters & bank, their is a price/value agreed. If stock price falls closer to that value banks can sell.
There are other options too Banks can demand Cash or more shares from the promoters. If promoters can't provide either than lenders sell.
And that is completely fair.
When Bank sells in market there is sudden supply of shares (which are already low priced). This supply leads to further fall and retail investors have to sell their shares at significant loss.
Please check the PURPOSE of pledged shares if its business (for company) or Personal.
SHOCKED ? Yes it's promoters own shares so they can pledge it for personal needs too.
Will you invest in such company ? Think twice.
This is called Pledge Revocation.
This is considered as +ive sign.
Just beware of companies & promoters who frequently create & revoke pledge shares.
In general Companies with Promoters having higher pledge have very high volatility in share prices.
Some of them are darlings of Operators too.
I have one, what happens to Dividends of pledged shares?
As far as I know since borrowers still maintain the ownership of pledged shares the dividend belongs to them.
So promoters get the dividend on their pledged shares. Isn't it so nice & relieving?
Typically >50% pledge is considered risky & retail investors should avoid it.
But I am risk averse investor. If I have 5000 companies to chose from why would I take such risk. My limit is 15%.
If Stock has big brands, strong balance sheet, good corporate governance, reputable Management they can easily save money on interest by pledging some shares. Banks have less risk & they would be happy to lend.
If these qualities are absent STAY AWAY !!
It had 11.87% promoters shares already pledged.
With Additional Pledged it is now 12.28%
Yes this is what 20.78 lakh promoters share means(just 0.41% more)
Messages/Tweets circulating are highlighting only No. of shares (meaningless)
Is Asian Paints a strong brand with good balance sheet & Reputable management ?
Can they survive ?
I will support the answer with some financial data. They came on TV & declared that we will fully pay employees during lock-down.
Without good balance sheet it's very hard to do such thing. Also such actions speaks volume about credibility of management.
Beware of Extra Smart guys & their innocent/blind followers, who convey half baked Info to bring prices favorable for their trades.