The Hindu : Business : Promoters’ stake drops in Orchid Chemicals

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Wednesday, Mar 19, 2008
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Promoters’ stake drops in Orchid Chemicals

K. T. Jagannathan

Lenders sell the shares pledged with them
No impact on operational management

CHENNAI: The Managing Director of Orchid Chemicals and Pharmaceuticals, Raghavendra Rao, on Tuesday, confirmed that the equity holding of the promoters in the company had dropped to 16.2 per cent from 24 per cent.

The drop was caused by the sale of 5.6 million shares by a couple of lenders with whom the promoters had pledged seven million free shares.

The promoters, according to Mr. Rao, had borrowed about Rs. 80 crore from Indiabulls Financial Services and Religare Enterprises to help them raise their stake in the company from 17 per cent to 24 per cent. They had bought five million shares from the market during March-April 2007 to raise their stake.

Mr. Rao told The Hindu that the promoters had pledged two free shares for every one share financed by the lenders. Accordingly, they had pledged with the lenders seven million free shares for 3.5 million shares funded by them. The lenders had sold 5.6 million shares and returned the balance, he added.

“Since the margin pressure was there and I could not bring up the required money, the lenders had sold the shares,” he said. Mr. Rao said he did not believe that these shares had gone into a single entity. A couple of foreign institutional investors — Morgan Stanley and Credit Suisse — had picked up these shares, he pointed out.

To a question, he said the latest development would not have any impact on the operational management. “It is a loss to the promoters. We have gone back to the last year’s level of 17 per cent,” he said. “With 24 per cent holding by the promoters, we had outsiders holding 76 per cent. Now the outsiders’ holding goes up to 83 per cent,” he said. He admitted that the promoters had made a mistake of going in for a stake hike through borrowed funds. “We will never do it again,” he added.

The lenders’ move predictably pushed down Orchid shares on the bourses. The sale of almost a million shares by Bear Stearns only accentuated the fall further. The shares closed at Rs. 113.60 on the NSE and Rs. 113.95 on the BSE losing more than 10 per cent on Tuesday. In the last two days the shares lost more than 50 per cent.

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