15 Big Reasons Why Company Promoters Selling Stake

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

(14) Promoters Cutting Stake Before A Big Default

It is one of the most popular reasons why company promoters selling stake in a given script. Most of the publicly listed companies prefer to raise funds for different projects.

These funds can be raised through different forms like issuing of bonds, corporate Fixed Deposits (FDs), Loan by pledging shares, etc. These funds need to be returned on maturity along with certain amount of interest.

However, if a company fails to repay the debt amount it will be referred as debt default. When a company is approaching towards debt default, promoters may prefer to cut partial or major stake as early as possible.

Once the debt default news is out publicly, the stock price may crash severely. Thus, small investors need to pay extra cautious when promoters are selling stake near debt maturity.

[Read Also: 10 Big Consequences Of High Stake Of Small Investors In Stocks]

(15) Mandatory Stake Sale To Meet Regulatory Changes

It is one of the most unique reasons why promoters are offloading stake in equities. Every shareholder needs to abide by the rules & regulations framed by stock exchange regulators like SEC in US or SEBI in India.

Promoters of a company are not different investors in this regard. Several stock exchanges have made restrictions over the maximum percentage of shareholding that can be owned by a promoter.

According to a post published in Mondaq, the maximum promoter shareholding permitted under SCRR is three times the minimum public shareholding, i.e. 75:25 or in a 3:1 ratio.

However, those who don’t comply with the above regulation, their voting rights & corporate benefits will be frozen till compliance. Whenever any such amendments hit the stock markets, promoters have to sell their holdings (if in excess) just to comply with prevailing rules.

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