Sebi watching share pledge

The Securities and Exchange Board of India, suspecting possible circumvention of its disclosure norms for share pledging, is mulling changes in the rules to bring to the fore cases of promoters raising funds by keeping shares as “indirect collateral”. The market watchdog is also considering making it mandatory for 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 in January 2009 had made it mandatory 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 had 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, which are created solely for the purpose of financing.