High prices combined with high interest rates that have dipped the volumes in the real estate sector have also led the realty companies to pledge more shares in a bid to raise their liquidity.
Many major real estate companies have been pledging more shares quarter on quarter."Promoters have utilised pledging of shares to get loans on regular basis. The percentage of promoter’s holding pledged has increased from 9.1% in June quarter to 9.5% in September quarter," said a research by ICICI direct.
Often banks are required that the borrower gives an assurance against the money borrowed as collateral, often in the form of shares. The promoter gives the shares to the bank as a collateral and the bank has an option to sell them off in case of a default.
“All sectors including aviation, manufacturing, construction and real estate are under pressure and we have seen decline in sales due to high interest rates,” said Rohtas Goel, chairman and MD of Omaxe Group. “We have raised debt by pledging the shares due the same reason, but we expect that things could improve post the budget in February.”
Omaxe has pledged 75% of its promoter’s holding as of September end.
Many other realty developers that include Unitech, Ansal Properties, Ackruti City, Orbit and Parshvanath too have pledged their shares to raise the debt. And in most cases, there has been an increase in the percentage of share pledged quarter on quarter.
“In real estate sector specifically many companies are struggling to complete projects combined with lower sales. Also liquidity is not that easily available and is more expensive too in the current situation, so pledging of shares remains the only option,” said a senior analyst that track capital market for a real estate consultancy.