SPV : An innovative device to hide pledged shares

Promoters in India are pledging their shares in order to borrow more and more money to fuel their expansion plans. This has raised serious questionmark over the safety of retail investors, who have heavily invested in such listed companies.
 
Earlier, this trend was not taken seriously when stock market was rising and interest rates were low. But presently,  RBI's increasing rates has made retail investors quite wary of putting their money in stocks which have a significant portion of pledged promoter shares. This is not the only problem. If the prices of such shares fell below the certain level then financers could sell them in order to avoid further loss. This has created inadvertent pressure on such stocks. 
 
If this is not enough, promoters are doing their best to avoid disclosing the number of shares pledged with lenders. Recent official data announced by National Stock Exchange is estimated to be 1.5 trillion rupees and the leverege can be even bigger than the estimate.
 
Many promoters resort to the game by having unofficial account. Promoters are wary of bear cartel that often targets shares whose promoters pledge shares. When prices fell below a certain level then lenders demand margin calls. This is also done in order to play market capitalisation game.
 
A higer official in a big Mumbai based broking house told The Sunday Indian, " The increasing use of SPV after the Satyam scam has increased worries for the retail investors."
 
Big companies like Kingfisher, Nagarjuna Fertilisers and Orchid Chemicals shares crashed due to fear of pledged shares. Not long ago, Koutons promoters were in red as shares drastically fell on the fear of pledged shares.
 
Usually, promoters use the route of special purpose vehicle in order to raise money against those shares.  It is bit scary to know how general investor are being talen as ride and regulators are silent. No onder if more Satyams keep tumbling out of closet in future.
 
This reminds of Enron scandal that has shown 96 million shares in Special Purpose Entity to douse the analysts and public and everybody knows what happened next. Is India Inc heading for more disasters like Enron? The answer is yes; if we don't act fast.