The reason for the possible dilution of Satyam Computer Services has become clear now. Satyam’s promoter has said that the entire stake held by SRSR Holding Pvt Ltd (a promoter group holding company) has been pledged to institutional lenders. Since the share price has been declining, these lenders have been selling shares to cover the margin shortfall.
Now, as of September 30, 2008, this entity holds 55.73mn shares or an 8.3% stake, representing nearly the entire 8.6% stake held by Satyam’s promoters. This is valued at about Rs 750 crore now, but was worth Rs 1,320 crore and was worth about Rs 4,600 crore in the beginning of September 2006. Why that date is relevant is that the announcement to the stock exchange states that the promoters have been pledging stock since September 2006.
The share price has fallen from Rs 800 in September-2006 to Rs 135-140 levels now. When lenders lend against shares, they keep a certain margin as collateral, so for a loan of Rs 400 crore, against shares worth Rs 500 crore, they will lend Rs 400 crore, keeping Rs 100 crore as margin. If this Rs 100 crore, say, falls to Rs 50 crore, they will sell from the remaining shares to ensure the margin stays at Rs 100 crore.
In Satyam’s case, as is evident, the share price fall has been significant, especially after its aborted attempt to buy out two promoter group companies. With the lenders selling shares, the promoters’ stake will be coming down. Addressing this issue could either mean a preferential issue of warrants, because if the promoters had money they would have topped up the margins, to ensure their shares are not sold. This development gives a new dimension to the whole issue of Satyam’s promoters trying to use the cash on the company’s books to buy out group firms.