Family stakes back Indian debt

Some of India's largest groups, including the Tata family controlled companies, the Ambani family controlled Reliance and Vijay Mallya's UB Group, have pledged large stakes in their listed companies as collateral to lenders, new disclosure requirements reveal.

These raise concerns about the hidden indebtedness of corporate India at a time of depressed market values. Almost 500 companies revealed pledges that are worth about $13.5bn at latest prices.

The most prodigious is the Tata group, which accounts for about one quarter of the total.

Many controlling shareholders of Indian companies, particularly in real estate, have pledged more than half of their stakes to lenders, leaving open the possibility they will fall into the hands of creditors in the coming months.

The disclosures come after the Securities and Exchange Board of India, the stock market regulator, made them compulsory last month.

The rule change was prompted by the fraud at Satyam Computer Services by B Ramalinga Raju, the former chairman, which came to light because he also quietly pledged his family's stake of more than 8 per cent to lenders, who sold it when the share price plunged with global markets.

Investors are now nervous that stakes pledged by many other controlling shareholders might be in danger of being sold suddenly by anxious lenders.

Tata Sons, the de facto parent of the group, has pledged stakes in 10 companies including Tata Consultancy Services, the outsourcing flagship, with 11 per cent pledged worth $1.12bn today. The group holds 73.8 per cent of TCS.

Tata Sons has also pledged 8 per cent of Tata Motors, or just less than a fifth of its 42 per cent stake now worth about $103.8m. The group has also pledged 14 per cent in Tata Steel, its other flagship, in which it holds a 33 per cent stake.

It has pledged larger stakes in smaller subsidiaries, including almost a third of its stake in Tata Tea, which owns Britain's Tetley, its entire stake in Tata Coffee and more than two thirds of its Tata Chemicals holding.

The arm of Reliance controlled by Anil Ambani, meanwhile, pledged 13 per cent of Reliance Communications, its mobile arm, to lenders. The group holds 66 per cent of the company, with the pledged shares worth about $955m at current prices. The Anil Ambani group also pledged large stakes in Reliance Capital and Reliance Infrastructure.

Copyright The Financial Times Limited 2009