In India, corporate transparency comes with puzzling questions

Electrosteel Castings

07/12/2015 24:30

By Rafael Nam and Himank Sharma 
    MUMBAI, Dec 7 (Reuters) - Indian regulators have launched an 
unprecedented drive to boost corporate transparency, bombarding 
firms with disclosure demands, but clumsy execution has created 
suspicions of a box-ticking exercise that may not entirely 
achieve its aim. 
    Poor disclosure among India-listed firms is a turnoff for 
foreign investors, a weakness Asia's third-largest economy can 
ill afford as competition for overseas capital heats up among 
emerging markets in expectation of higher U.S. interest rates. 
    A Reuters review shows Mumbai's National Stock Exchange, 
India's biggest bourse, issued 934 requests for clarification to 
its top 500 listed companies  .NIFTY500  since revamped 
disclosure rules took effect in Sept. 30 last year. 
    That is almost double the 492 requests the top 500 received 
over the course of the entire preceding decade. 
    Requests in the past 14 months have ranged from queries on 
market rumours to news reports, but repetitive and sometimes 
misdirected questions mean that firms, analysts and some 
investors are questioning the impact of the campaign. 
    "There's just no fantastic value added in this entire 
process," said the chief financial officer of one of India's 20 
largest listed companies. 
    "We are going through the motions of the efforts because we 
can't be seen as being indifferent to the queries raised." 
    To be sure, many inquiries are pertinent and investors say 
there has been a gradual improvement in corporate governance in 
recent years, but executives say the disclosure drive is 
littered with redundant, time-wasting requests. 
    For example, BSE Ltd, India's second-biggest exchange, 
queried HCL Technologies  HCLT.NS  on an acquisition that the 
firm had disclosed the previous day.  urn:newsml:reuters.com:*:nBSEc7H0Js. 
    In other cases, analysts said, exchanges confused the 
impacted units or even the companies at stake: sending a 
clarification for information to Electrosteel Steels  ELES.NS  
instead of Electrosteel Castings  ELST.NS , or to Vedanta-owned 
 VDAN.NS  Cairn India  CAIL.NS  instead of the separate, 
UK-listed firm Cairn Energy  CNE.L .  urn:newsml:reuters.com:*:nBSE8w6I6g  urn:newsml:reuters.com:*:nBSE8DvInt  
     
    ANXIOUS EXECUTIVES 
    India's two biggest stock exchanges enforce disclosure rules 
at the behest of the regulator, the Securities and Exchange 
Board of India (SEBI). 
    The National Stock Exchange's chief regulatory officer, V. 
R. Narashimhan, said exchanges were fulfilling their regulatory 
obligations and were conscious of not overstepping the mark. 
    "Such disclosures are steps towards achieving better 
governance. Corporate India will learn," chief regulatory 
officer V. R. Narashimhan said. 
    Asked about criticisms of the disclosure campaign, the BSE 
said in an emailed statement that it was responding to SEBI's 
directive to seek clarifications from companies. 
    "The duty of seeking clarifications from companies regarding 
unpublished price-sensitive information has been cast upon the 
exchanges by SEBI," BSE said. 
    Since his appointment five years ago, SEBI chairman U.K. 
Sinha has made corporate transparency a priority, attempting to 
shake off India's decades-old reputation for murky governance. 
    Investors acknowledge SEBI's efforts. 
    "As more companies' standards improve, the scope of 
investment, especially for some of these foreign investors, can 
increase," said Mahesh Patil, co-chief investment officer at 
Birla Sun Life Asset Management which manages around $20 
billion, including foreigner funds. 
    Under the new rules, Indian regulators have drafted seven 
broad categories of price-sensitive company information that 
would require disclosure to the market, including details on 
changes to ownership and the outcome of board meetings, which 
must now be released swiftly after the event. 
    In the stricter regulatory environment, executives also 
worry that unfounded penalties could get more of their firms 
tangled up in India's lengthy and complex appeals process. 
    Reuters reviewed 83 appeals this year against SEBI penalties 
in which there has been a clear verdict. Of these, SEBI won 36 
cases and lost 23, with split verdicts delivered in the rest. 
 
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Disclosure requests by India's National Stock Exchange    http://reut.rs/1OBejUi 
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 (Additional reporting by Aby Joseph Koilparambil in BANGALORE; 
Editing by Clara Ferreira Marques and Mark Bendeich) 
 ((rafael.nam@thomsonreuters.com; +9122-6180-7425; Reuters 
Messaging: rafael.nam.thomsonreuters.com@reuters.net))