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A day before the SC verdict, Tata Sons revoked pledged shares in various Tata Companies: What does this mean?

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Tata Sons, the principal investment holding company and promoter of Tata companies, released pledged shares in various Tata companies namely Tata Consultancy Services (TCS), Tata Steel, Tata Power, Tata Motors and Tata Consumer Products. Except for TCS (March 26), the release of pledged shares of other listed companies took place on March 25.

It was on Friday (March 26) that the Supreme Court set aside the National Company Law Tribunal (NCLT) to reinstate the ousted Chairman Cyrus Mistry. This came as a big win for Tata Sons.

What does released pledged shares:
– Before learning what releasing pledged shares is, it is important to understand what pledging of shares means. Pledging of shares is a means of taking loans against the shares that one holds.

– Usually, if a promoter of a company wants to borrow a loan to meet their business or personal requirements, it may opt for pledging of shares. In this process, the promoter keeps the shares of the company or companies as collateral to lenders.

– These promoters may pledge shares for many reasons like to address working capital requirements, to fund existing or new ventures, to acquire companies or stakes in other companies, etc.

– If the promoter fails to pay back the amount than the lender can sell the stakes in open market.

– So, when does a promoter release pledged shares. It is after you repay the amount and get the shares back.

– In some cases, these promoters release pledged over the fear of losing control of their businesses or when the stock prices recover.

– In this case, it can be more to do with the much-awaited verdict of the Tata-Mistry case.

One needs to note that other than having minority shares in many listed companies of Tata Sons, Shapoorji Pallonji (SP) Group has 18.37 per cent shares in Tata Sons tool. Meanwhile, half of SP Group’s shares have been pledged in banks to raise capital. But Tata Sons had filed a petition to block SP Group’s plan to pledge shares for raising funds.

On September 22, SC had restrained Shapoorji Pallonji (SP) Group and Cyrus Mistry as also his investment firm from pledging or transferring their shares of Tata Sons Pvt Ltd (TSPL). During one of the pleas, SP Group had even proposed that its 18.37 per cent stake in Tata Sons, which it claims to be worth Rs 1.75 lakh crore, be swapped with shares in the Tata group’s listed companies. So, the clear aspirations of SP Group in listed companies can be seen.

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