India Inc's Crown Jewels At Risk

Indian promoters, especially first generation entrepreneurs, run the risk of losing control over their best assets after pledging shares to raise money.

- Rashmi Pratap

In 1967, Messrs Ramgopal Indraprasad, which ran two cotton ginning factories besides polishing pulses, went bankrupt. The business had suffered losses and the owner family owed Rs 6 lakh to friends and relatives. The family’s eldest son, then 17 years old, was asked to discontinue studies due to financial difficulties and help with the business. A chance meeting with an official of Food Corporation of India (FCI) helped the teenager strike a deal with the government’s grain-handling arm – to supply polished dal and clean barley to the Indian Army, one of the biggest buyers of grains and pulses. Two years later, the company was renamed Subhash Chandra Laxmi Narain and continued to scale new heights with new businesses.

Over half a century later, the enterprising boy, now 69-year-old Subhash Chandra, finds himself in another fiscal turmoil. At risk this time is the jewel in his empire’s crown, Zee Entertainment Enterprises, owned by the Essel Group. Its promoters, including Chandra, have pledged nearly 60 per cent stake in Zee Enterprises to raise money for some risky businesses, including infrastructure.

Chandra is not alone in the pledged share saga of listed Indian companies. In fact, Zee ranks a lowly 22nd among the BSE 500 companies whose promoters have pledged their shareholding. On top is the Avantha Group, where promoters have given 100 per cent of their equity in CG Power and Industrial Solutions as collateral. For Zee, the figure is 58.3 per cent (end of December 2018).

The percentage of pledged shares for many others is also rising. Promoters of Coffee Day Enterprises have increased the percentage of their pledged shares from 57.6 per cent in December 2017 to 79.4 per cent in December 2018. For Anil Ambani’s Reliance Infrastructure,this has gone up from 66.1 per cent to 83.6 per cent, while Reliance Capital is up from 70 per cent to 83 per cent.