Suspecting possible circumvention of its disclosure norms for share pledging, SEBI is mulling changes in the rules to bring to the fore cases of promoters raising funds by keeping shares as ‘indirect collateral’.
At the same time, the market watchdog is also considering making it mandatory for company promoters to disclose the amount of funds raised by share pledging and the utilisation of such proceeds, a senior official said.
After the Satyam scam, which revealed the promoters having pledged almost all their shares, SEBI had made it mandatory in January, 2009, for promoters of all listed companies to disclose their share pledging activities.
However, these norms require only the disclosure of the number and percentage of shares pledged and not the amount of debt or funds raised by keeping shares as collateral.
In the recent past, various cases have surfaced when investors have resorted to panic selling after coming to know about the huge amount of funds raised by promoters through share pledging, as also by indirect pledging of shares, to avoid SEBI’s disclosure norms.
Sources said the regulator has received complaints of promoters resorting to informal and private financing arrangements with shares as collateral to avoid the disclosure norms.
In many cases, these arrangements are entered into with entities outside the banking system and promoters do not pledge the shares of the listed companies themselves, but use the shares of unlisted Special Purpose Vehicles (SPVs), which are created solely for the purpose of financing.
In its initial investigation, SEBI has found that the promoters generally turn to NBFCs (non-banking financial companies) and brokerage firms to raise funds with shares of some holding companies or SPVs as collateral, rather than using the shares of directly listed companies.
SEBI is also concerned by the allegations of promoters resorting to fund-raising activities of huge scale through formal and informal pledging without revealing either the size of the funds or the end-use of these proceeds, sources said.
As per the share pledging disclosed by the companies, promoters of about 800 companies have pledged shares worth an estimated Rs 1,50,000 crore.
However, the current disclosure norms do not provide any estimate of the funds raised through such pledging and it is feared that the actual cases of pledging could be much wider.
While a high interest rate regime is giving rise to the new fund-raising methods, the promoters are wary of share pledging details becoming public as they fear it to indicate a bad financial health.