The crash in stock prices caused by the covid-19 pandemic, which has prompted promoters to provide more collateral to lenders, has also started to impact private equity investors.

The benchmark BSE Sensex fell 23% in March as panic gripped markets worldwide. Several stocks saw a sharper decline of 50% or more, leading to breach of covenants in loans taken against them.

Private equity (PE) firms, which had availed loans against their listed holdings, have also been impacted by this turmoil.

US private equity behemoth Carlyle Group is one of the PE funds that has seen a margin call on a loan that it took by pledging shares in PNB Housing Finance Ltd, following a sharp fall in PNB Housing’s shares, according to two people aware of the development. The PE firm had availed a loan of nearly $60-70 million by pledging its entire stake of 32.22% in PNB Housing. Shares of the mortgage lender plunged 45% in March.

On Tuesday, Carlyle informed the stock exchanges that lenders, Barclays and Deutsche Bank, have released all the PNB Housing shares that were pledged for the loan.

“The fall in the PNB Housing stock triggered margin calls and Carlyle decided to close the loan by repaying the entire amount,” said the one of the persons mentioned above, requesting anonymity as he is not authorized to speak with the media.

Carlyle declined to comment.

The Economic Times reported on Tuesday that after the fall in share prices of Axis Bank Ltd, PE firm Bain Capital, which owns a large stake in the private lender, has entered into negotiations with lenders for restructuring the terms of a $600 million loan that it had availed to buy the stake. Bain Capital had in 2017 purchased shares and warrants of Axis Bank worth nearly $1 billion.

“Generally, lenders give these loans at 3x security cover. Like any other loan against shares, the borrower will have to bring in more shares or cash collateral, if the value of the cover declines,” said the second person mentioned above.

The loans are taken by PE firms to mainly buy stakes in target companies and, in some cases, provide liquidity to investors in their funds, the person said.

Besides PE funds, the fall in stock prices has severely hit promoters with highly leveraged balance sheets and senior management executives who had taken loans to exercise their stock options.

Last month, Mint reported that lenders to Future Group founder Kishore Biyani had invoked promoter shares in group company Future Retail Ltd, after a steep decline in shares of Future Group companies.

Senior management executives across corporate India are also bearing the brunt of the weak market sentiment.

IDFC First Bank Ltd managing director (MD) and chief executive officer (CEO) V. Vaidyanathan sold his personal shares worth almost 93 crore to repay loans takento exercise employee stock ownership, while Shyam Srinivasan, MD and CEO of Federal Bank also sold sharesworth 43 crore to service such loans.

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