HDIL shares free fall: Whiff of a looming default?

Shares of Housing Development and Infrastructure Ltd are in a free fall. The stock has lost about 34 percent in three days.

According to a report in the Business Standard, the stock fell 14 percent yesterday as institutional investors offloaded after Managing Director Sarang Wadhawan cut his stake to 0.99 percent from 2.19 percent.

The bulk deal data on NSE shows that Citigroup Global Markets Mauritius Private Ltd sold 4.93 million shares of HDIL at Rs 100.60 Yesterday.

According to a report in the Business Standard, Citi held 1.1 percent stake in the company as of December-end and is likely to have exited through the bulk deal.

 HDIL shares free fall: Whiff of a looming default?

The tanking HDIL could indicate a looming default. AFP

Investors continued to hammer the stock even after Wadhawan clarified on CNBC TV18 that the sale of 5 million shares or about 1 percent stake was to fund a land acquisition.

"This was primarily so that the promoters can fund an acquisition which the company had entered into about a year back. This was one of the payment tranches which was due," he said.

"Since the company is on the mode of debt reduction over the last six months the promoters thought fit that we should fund the company to make sure that the land acquisition goes through," he said.

He also assured that over the next quarter the company will disclose the entire details of the acquisition.

The market, however, does not seem to take this at face value.

Today the company declined nearly 19 percent. At 12 noon, the stock was down 16 percent at Rs 80.85.

A Business Line report quoted an analyst as saying that the fall in the stock is an early warning sign of default.

The analyst told the newspaper that the promoter selling stake in his company to fund land acquisition is unusual, unless the company is in a very difficult financial position.

This also means the company's "debt repayments could get tighter from here on", the report said.

According to another report in theBS, there was speculation that the company was facing margin calls from a financial institution. The report, quoting dealers, said the promoters had pledged 96 percent of their shares.

The report also said there are chances that a few operators might have built short positions in the stock as the company had high quantum of pledged shares.

This was a usual practice in 2011, when pledging was rampant.

The strategy of the operators was to pull down the stock to the level below the level at which the price was pledged. This will prompt a margin call from the financial institution with which the shares are pledged, forcing the promoters to sell own stake to pump in money, the BS report said.

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Updated Date: Dec 20, 2014 21:05:12 IST

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