Yes Bank falls over 5% on concerns over CG Power; stock hits 52-week low

The lender held 12.79 percent stake in CG Power and Industrial Solutions as of June 2019.

Shares of Yes Bank fell over 5 percent intraday on August 21, hitting their fresh 52-week low of Rs 67.55, following worries over the valuation of stake in Gautam Thapar's CG Power, which has been hit by allegations of financial irregularities.

The lender held 12.79 percent stake in CG Power and Industrial Solutions as of June 2019.

Shares of CG Power and Industrial Solutions remained on the course of free fall, plunging as much as 20 percent, to hit their fresh all-time low of Rs 11.80 on BSE on August 21.

As per media reports, the Ministry of Corporate Affairs (MCA) has ordered an inspection into the affairs of the company after reports of financial wrongdoings came into the light.

CG Power in a BSE filing on August 20 said, "While working on one of its priority tasks of seeking refinancing of certain facilities and as a part of conducting financial analysis in this regard, the operations committee was made aware of some unauthorised transactions by certain employees of the company."

The operations committee was also made aware of a letter received by the company from a financing company regarding a certain interest payment failure which the committee was unable to trace or ascertain from the financials of the company, the filing added.

The board also found that the total liabilities of the company and the group may have been potentially understated.

"The total liabilities of the company and the group may have been potentially understated by approximately Rs 1,053.54 crore and Rs 1,608.17 crore respectively as at 31 March 2018; and by Rs 601.83 crore and Rs 401.83 crore respectively as at 1 April 2017," the filing added.

Around 1040 hours, hares of Yes bank traded at Rs 69.45 on BSE, down Rs 1.80 or 2.53 percent.

Promoters raise, cut their pledge holding in these 30 stocks; what should you do?

Pledging of shares by the promoter group is not new but investor sentiment has turned cautious on those companies which have a high amount of pledged promoter holding

In news that would bring cheer to investors, data reveals that promoter pledged holdings in BSE 500 constituents has fallen in value terms quarter-on-quarter.

The percentage of pledged promoter holdings declined to 2.47 percent in the April-June quarter as compared to 2.83 percent in the January-March quarter, Kotak Institutional Equities said in a recent note. Outstanding pledged shares by promoters stood at 1.73 trillion, or about 1.21 percent of BSE 500’s market capitalisation as at June-end.

Pledging of shares by the promoter group is not something new and must not be seen as a bad practice, but in the backdrop of rising defaults by companies, investors have turned cautious on such companies.

Companies often adopt such a practice to meet their liquidity needs, but at a time when the economy is showing signs of a slowdown, companies with high promoter pledge could add to your risk.
Kotak too clarified that pledging of shares does not necessarily imply that a company or a promoter is under financial stress. “Banks (lenders) could have sought additional security in the form of promoter shares,” it emphasised.

Vinod Nair, Head of Research at Geojit Financial Services, explained that a fall in pledge shares by promoters provides a sense of security and indicates an improvement in the financial position of the company.

A fall in promoter pledges is a good omen and investors must consider this as a positive signal while arriving at an investment decision. The top 30 companies in which promoters reduced their holding by over 10 percent in the June quarter include CG Power and Industrial Solutions, Sterlite Technologies, Indiabulls Real Estate, Himatsingka Seide, India Cements, Sadbhav Engineering, Indiabulls Housing Finance, Advanced Enzyme Technologies, Jubilant FoodWorks and Adani Ports.
Romesh Tiwari, Head of Research at CapitalAim, said a decline in pledged holdings combined with a fresh infusion of capital from the promoter group will generate trust and shows the promoters’ commitment towards the company.