Promoters bypass pledging norms

Open New Demat A/C, Transfer Shares & Give Power Of Attorney To Financiers

Mumbai: Since March this year, a number of company promoters were finding it difficult to raise money by pledging their company shares with financiers. After the Satyam scam broke out, market regulator Sebi had made it mandatory for all promoters to disclose the quantum of pledged shares of their companies.
    Dalal Street too did not approve of this strategy of the promoters. Investors saw share pledging by promoters as a negative for the stock. During the recent bear phase, speculators had a field day, going short in a number of stocks for which information on pledged shares was made public.
    As ingenious the Street is, promoters now have a new way out of Sebi's rules relating to disclosures about pledged shares, an expert said.
    This is how it works: Suppose the promoter, who has a demat account in which he holds his company's shares, and of others too, needs money. But he does not want to pledge the shares through the regular channel—after all, it requires compulsory disclosure under Sebi's rules. What does he do?
    He opens a new demat account and transfers the shares of his company to the new account. He executes a power of attorney in favour of the financier who gets the right to operate the account in which the promoter's shares have been moved. And against this power of attorney, the promoter gets fundings from the financier. When the promoter is able to return the money, the financier surrenders the power of attorney of the demat account to the promoter.
THE NEW GAME PLAN
Promoter needs funds, but unwilling to disclose
Opens a new demat A/C
Transfers his holdings in his co to this new demat A/C
Creates a power of attorney (PoA) for newly opened demat A/C in favour of a financier
Gets fund against PoA from financier
Promoter uses the money