(8) Promoters Infusing Funds In Corporate Debt Restructuring (CDR)
It is one of the most authentic reasons why company promoters selling stake in a given stock. Corporate debt restructuring is the process of restructuring the debt of a viable company that is facing difficulties due to internal or external factors.
It is often achieved by reducing the burden of the debts on the company by decreasing the interest rates & increasing the time period to pay the obligations back.
When a debt ridden company is approved for CDR mechanism, its promoters have to meet equity infusion requirement under CDR as promoter’s contribution.
For example, Suzlon Energy promoters sold off approximately 6.19% stake in Feb 2013 to raise funds to make their contribution. Thus, investors should remain extra cautious to remain invested in such debt ridden companies.
(9) Bankers Selling Pledged Shares Of Promoters
It is one of the rarest reasons when promoter’s stake sale is done by someone else. Bankers or financers often give loans to promoters by taking the shares as collateral.
Whenever the stock price come down to certain levels in the secondary markets, promoter is asked to make some payment or pledge more shares.
If the promoter fails to do add more margins, the lenders may sell their pledged shares in the open markets. It is usually done to recover the major portion of the debt amount.
According to a post published in FirstPost, the value of shares pledged is usually two-to-three times the value of the loan.
A high promoter pledge can play havoc in the script if such forced selling is triggered by lender. A forced sell may even result in the change in management of the concerned company.
Thus, investors are advised to consider amount of pledged shares before making any investment decision in a given script.
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