Pledge of shares can either be offered as 100% security under the transaction or maybe partial or as collateral, as lenders follow their method of advancing under pledge transactions. Normally adequate margin is kept against the market value of shares offered under the pledge. Margin adequacy depends upon the volatility of pledged shares and/or market conditions.
Advantages of Appointing IDBI Trusteeship Services Ltd (ITSL) as a Share Pledge Trustee:
- Quickest way to raise loans.
- It is beneficial for the borrower to create pledge in favour of the third party, here in favour of ITSL as Trustee, instead of creating pledge in favour of lender directly.
- Listed as well as unlisted shares can be pledged in favour of ITSL for the facility advanced by the lender to the borrower.
- In consortium lending where a number of lenders are involved, it is always beneficial to have a pledge of shares with single entity i.e. with the Trustee, instead of having a pledge of shares in favour of each individual lender. In such a case, ITSL will hold the pledge for the benefit of consortium lenders.
- ITSL will hold the pledge of shares for the benefit of the lender till the end of the transaction.
- ITSL as Trustee can monitor valuation of shares for the listed shares pledged with them on a daily, weekly, monthly basis, which is important in asset cover calculation as per the facility agreement or term sheet.
- In case of Event of Default, ITSL can invoke the pledge on the basis of instructions received from the lender and as per Regulatory provisions and Guidelines from time to time.
- ITSL has the expertise to sell the shares pledged and distribute the sale proceeds to the lenders towards repayment of their loans.
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