Here’s What India Inc. Needs To Do For Better Corporate Governance
Current disclosures on promoter holdings are inadequate as most Indian promoters hold shares through holding companies and not in their own names.
That’s according to a recent note by Kotak Institutional Equities, which said that lack of disclosures by company promoters, especially those pertaining to finances, warrants examination by regulators.
The brokerage sought disclosures on financials and debt of related unlisted entities of listed companies and simplification of holding companies of promoters. “Stock exchanges simply report the total number of shares held by promoters without disclosing the primary entity/(ies) that hold the shares,” it said.
The note comes in the backdrop of corporate governance malfunctions at many Indian companies resulting in erosion of shareholder value:
- Media baron Subhash Chandra was forced to announce stake sale in the flagship Zee Entertainment Ltd. and other assets after the promoter Essel Group’s debt ballooned to over Rs 17,000 crore.
- Shares of Sun Pharmaceuticals Industries Ltd. tanked nearly 13 percent on Jan. 19, after reports about a whistleblower plaint alleging irregularities such as a company’s distributor lending money to itself.
- Care Ratings downgraded bonds, deposits and loans of the non-banking lender Dewan Housing Finance Company Ltd. amounting to $1.2 billion after an investigative news report alleged that the firm siphoned loans of up to Rs 31,000 crore.
“There could be multiple levels of such holding companies; also, inadequate data on the debt (if any) or pledged shares of some such holding company/(ies) may give an incomplete picture to minority shareholders,” the report said. “As an aside, a retail investor will typically hold shares of companies under his/her name.”
Indian regulators, the note said, could consider restoring circuit limits for all stocks; currently F&O stocks don’t have limits for upward or downward movements. “The regulator may be compelled to implement stricter standards for directors of companies entrusted with financial propriety.”