Fri. Mar 29th, 2024
PMS Prasad Photograph source: Business-standardPMS Prasad Photograph source: Business-standard

PMS Prasad, who is considered as one of the senior-most executives of RIL and has been a trusted hand of Mukesh Ambani over the years, pledged to sell over 600000 of RIL. This constitutes 93.75% of the total share of the company that he holds worth Rs. 103 crores. These types of large stock pledging are generally done when the investor needs to raise cash to invest elsewhere.

What is the pledging of shares?

In easy words, the pledging of shares means taking a loan against the shares held by a person. This is a method by which promotes a company gets easy loans. They can use the money to fulfill both business and personal requirements. Some of them might be working capital requirements, funding other ventures, to carry out new acquisitions, personal obligations, and more. Generally, this is the last option for the promoter to raise funds. These occur during economic slowdowns.

The pledging does not have any impact on the shareholder when the market is good. If the company (whose share is being pledged) is at a bear market the investors will happily provide the cash. As shares are assets the shareholder might also opt to use it as security and obtain loans from banks.

But if the company’s shares are in the bear market it provides a certain amount of struggle for the pledger. With every fluctuation in the market, the collateral also changes as the share price changes. If the price falls the value of the collateral also falls with it. The shareholder then needs to add in cash or add more shares to maintain the collateral.

If the promoter fails to overcome the shortfall, the lender also has the option to sell the pledged shares in the open market to obtain the required value. This leads to a further decline in the share price for the company because it promotes panic selling.

Looking into the matter:

Compensation of Prasad’s 640000 shares that he holds in FY20 was around Rs. 11.15 crores. After the sale, he will still have 40,000 shares of the company for himself. PMS Prasad currently holds office as the executive director of Reliance Industries (RIL).
Prasad has worked in different roles in the RIL for over 38 years. He has been representing the conglomerate as a whole-time director of the company since August 21, 2009. He has also been in several senior positions such as fibers, petrochemicals, refining and marketing, and exploration and production businesses. To this, he adds to the company by being a member of the health, safety, and environment committee and risk management committee of Reliance.

Also, he is the director at Network18 Media & Investments Ltd., TV 18 Broadcast Ltd., and Reliance Commercial Dealers Ltd. In these companies, he also enjoys being a member of stakeholders’ relationship, corporate social responsibility, audit, nomination & remuneration, and risk management committees, and chairman of the Nomination and Remuneration Committee and a member of the Corporate Social Responsibility Committee of Reliance Commercial Dealers Ltd.

Previously, in September 2017, Prasad pledged 136,666 stocks of the company. Since then there has been no new trading activity by the corporate executive.

Alok Agarwal, Chief Financial Officer (CFO) of Reliance Industries had pledged 1.44 million shares in September 2019. Alok Aggarwal received over 100000 shares via rights issue last month. Last month, he again pledged 225,000 shares of the company.

Managing Director (MD) of the HDFC Bank, Aditya Puri, has also been pledged shares in 2018 and 2019. He has also exited 95% shares of the bank in recent times. He executed the pledge in 2018 and 2019 to exercise other stock options in the market.

RIL shares have recovered from the downfalls of March. It has doubled in the last four months. The per-share price of RIL was traded at Rs. 1055.9 on March 27 which now stands at Rs. 2135.90. The company has sold stakes to Google and Facebook in recent times.  The company raised Rs. 2.13 trillion by investing in the Jio platform, rights issue, and a BP investment.

 

 

By Swastik Bhattacharjee

A student from Kolkata. Currently content creator at The Indian Wire.

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