• Sunday, 21 April 2019

Emami, Apollo Hospitals latest to spook investors


Feb 12, 2019 (2 months ago) |
New Delhi, Feb 11 : After the Zee stock collapse, with nerves already frayed amongst Mutual Funds (MFs) and NBFCs, a new name emerged on Monday to cause fresh tremors.
Kolkata-based Emami Ltd has Indian MFs holding a huge Rs 2,000 crore promoters' debt exposure against security of listed Emami shares. Emami Group is seen having large LAS (loan against securities secured against collateral) borrowings from non-MF lenders too. Emami promoters hold 72 per cent stake, of which half is already disclosed as pledged.

The problem is average daily traded volumes of Emami shares are barely Rs 10-12 crore. Emami stock price is already nearly 50 per cent down from its peak and could be the next big bust. In 2015, Emami raised Rs 950 crore to partially fund the Kesh King acquisition for Rs 1,684 crore. It bought Kesh King and allied brands from SBS Biotech, a deal which analysts categorised as expensive at the time.

The stock dropped 11 per cent intra day on Monday to an over 4 year low of Rs 336, before making a partial recovery but still closing down 4 per cent at Rs 368, rocked as it was this negative news.

As is the case of Zee, the MFs will struggle to enforce the security if there is a breach of margin requirements, given the lack of liquidity in the counter. This begs the question how MFs in the first place have granted such huge loans against such illiquid securities.

Refinancing of all promoter loans is as it is severely challenged post ILiamp;FS, DHFL, Zee situations and all MFs have sworn off providing any rollovers.

After the NBFC scare with the ILiamp;FS exposure, the run on Mutual Funds cannot be discounted. That is why SEBI stepped in recently clearly articulating the need for stability. Over time, MFs have turned into the single largest counterweight to FPIs in Indian equity markets, keeping the indices afloat even during the worst FPI pullouts. Last year, FPIS pulled out a record Rs 83,000 crore from Indian equity and debt instruments.

Given all these tremors, market concern is mounting on repayment/unwinding of all such LAS borrowings. Yet, for all the heat and dust, there is still no policy action on this subject till now from SEBI and RBI.

Further, a 13 per cent fall in Monday's trading in Apollo Hospitals stock price, the single largest day fall in seven years, spooked investors. The promoters own 34 per cent of the company and they have pledged nearly 75 per cent of their stake, scaring the investor community.

On Monday, the context for the alarming fall may well have been the Madras High Court declining to pass interim orders on a plea by Apollo seeking to restrain the Commission of Inquiry from looking into the correctness and adequacy of the medical treatment given to Tamil Nadu Chief Minister J. Jayalalitha before her death in 2016.

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