Mumbai: Some Indian firms are not too forthcoming on price-sensitive information, such as on divestments and acquisitions, to shareholders even though they are required to do so under the disclosure norms of capital market regulator Securities and Exchange Board of India (Sebi).
Under these norms, part of the listing agreement of firms, it is mandatory for a company to immediately inform the stock exchanges price-sensitive information and events that affect its operations and performance. Such developments include issue of fresh securities, acquisition, merger, disinvestment, restructuring, and spinning off or setting new divisions, among others.
Information gap: Sebi headquarters in Mumbai. The disclosure norms mandate firms to give stock exchanges information about events that affect its operations, but they don’t specify the details that need to be disclosed. Abhijit Bhatlekar / Mint
Some companies are following the norms in letter and not in spirit.
The guideline do not specify the details on each of these developments that have to be announced by the firms. Taking advantage of this, many listed firms are announcing developments such as divestment or acquisition of businesses or assets, entry into new markets, etc., involving financial cost or return but often are not disclosing the actual financial terms or valuations involved.
The list of such firms is growing. At least a dozen companies that had announced divestment of businesses, strategic alliances and even acquisitions in 2009 have not disclosed the financial value involved in those transactions.
For instance, Wockhardt Ltd, India’s sixth largest drug maker by sales, which announced three divestment deals in the past six months, has not specified the net realization from any of these deals in its respective announcements to stock exchanges.
It sold the business unit of a German firm Esparma GmbH in February, its animal health business to a French firm in June and its nutritional business to Abbot Laboratories Inc. in July but did not disclose financial consideration for any of these deals.
Another Mumbai-based drug maker, Lupin Ltd, in March announced its acquisition of Multicare Pharmaceuticals Philippines Inc. to stock exchanges but did not specify the valuation of the deal.
Tata Steel Ltd and Dr Reddy’s Laboratories Ltd, among others, have not disclosed the financial terms of the developments that have material impact on them.
Tata Steel’s wholly owned subsidiary Tata Steel Global Minerals Holdings Pte Ltd bought additional shares in Riversdale Mining Ltd, raising its holding to close to 20% in July, but did not disclose the price at which the shares were bought.
Similarly, Dr Reddy’s signed a strategic alliance with British drug maker GlaxoSmithKline Plc. in June to share its generic products for new markets but did not disclose its financial implications.
“As per the listing agreement, I don’t think it’s mandatory on the companies that they should announce each and every information related to such developments, though transparency is a key indication of good corporate governance,” a lawyer with a Mumbai-based corporate advisory firm said on condition of anonymity.
However, for Manju Lal Shah, a Mumbai-based equity investor holding shares of some of these companies, “investments and prospects of my portfolio companies are always priority information and the management should share this with us.”
Though Sebi norms do not make it mandatory for a firm to give specific information on all corporate developments, it talks about penalties for violation of disclosure norms.
Under section 23A of Securities Contract Regulation Act, the regulator can impose a penalty on any firm that fails to disclose information to the stock exchange under the listing agreement.
The penalty is Rs1 lakh for each day during which failure continues, or Rs1 crore, whichever is less.
“While clause 36 (of a listing agreement) mentions that all price-sensitive activities should be updated to the stock exchange, it does not mandate listed companies to reveal the size of an acquisition. Thus, the company has not violated the norms of Sebi,” an executive of a communication agency said on behalf of Lupin. He declined to be named.
A spokesman of Dr Reddy’s responded to a Mint query on whether the company violated Sebi’s disclosure norms by not providing financial impact of GSK alliance by saying: “At this point, we do not consider the contract to be material to warrant a disclosure.”
“Since listing agreement talks about disclosure of developments which has a material impact, it depends on how material this development is for the company for a disclosure,” an investor relations director with another Mumbai-based drug maker said on condition that both the official and the firm remain unnamed.
A Wockhardt spokesperson said: “As per the provisions of Clause 36 of the listing agreement with the stockexchanges, the company is required to inform about the events which inter-alia include change in general character or nature of the business of the company, such as disposing of or agreeing to sell or dispose of any unit or division by the company, and as such there is no specific requirement to provide the valuation of a transaction.”
A Sebi spokesman declined to comment on the issue.
Under Sebi norms, firms are required to disclose price sensitive information but they can make a special submission to exchanges, asking them not to make public certain information that is detrimental to the firms’ interest. It seems none of the firms mentioned above has made such submissions to stock exchanges.
An email was sent to the Bombay Exchange on Wednesday but the exchange sought time till Thursday to answer the queries.