15 Big Reasons Why Company Promoters Selling Stake

Reasons Why Company Promoters Selling Stake. Company promoters planning to sell their stake.

(6) Serious Conflicts Within Promoter’s Business Interest

It is one of the most surprising reasons why company promoters selling stake in a given equity. A company is usually governed by one or more promoters working together. They usually work jointly for the growth of whole organization.

Sometimes, one or promoters can have different opinions about a business decision. In such a case, serious conflicts within the promoters may arise.

Generally, small issues can be resolved with time. But, if the decision can affect the business interested to a great extent then one or promoters may prefer to exit. This usually results in major or even entire stake sale by promoters.

However, the actual outcome of such critical decision can be assessed only after few months or years. Thus, investors need to remain extra cautious when analyzing growth prospects of such companies.

[Read Also: 10 Biggest Driving Factors Determining Direction Of Stock Prices]

(7) Promoters Looking To Retire Debt

It is one of the most ridiculous reasons why company promoters selling stake in a given security. Stake sale to reduce debts does indicate a stretched balance sheet. It conveys a sort of running away from the business.

On the other hand, when a company sells its non-core assets such as land parcels, hotels & other properties, or even a subsidiary, it is viewed as a positive step. This not only helps them to reduce rising debts but also improve margins in the long run.

For example, Essar group & even Aditya Birla group sold its BPO unit for $610 million & $260 million respectively to retire debt. This valuable & business-friendly step resulted in price rise of their stock quickly.

However, when stake sale is done when debt repayment is approaching or near maturity of bonds then it could be a possible signs of debt default ahead. This could be a negative signal for the investors.

Image Source: Shutterstock

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