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DISCLOSURES, DISCLOSURES, DISCLOSURES

Published on Thu, Sep 10,2015 | 21:28, Updated at Mon, Sep 21 at 17:44Source : CNBC-TV18 |   Watch Video :

Disclosures, disclosures, disclosures! SEBI wants India Inc. to reveal more details on key material events such as acquisitions, amalgamations and even family agreements! CNBC TV18’s Menaka Doshi says this may mark a new era of transparency. In the Listing Regulations issued last week SEBI put up a long list of events or developments that companies must mandatorily disclose. These include…

Acquisitions,  including an agreement to acquire. Even an acquisition of 5% or more must be disclosed
Sale or disposal of any unit/division/subsidiary of the listed entity
Any restriction on transferability of securities
Alteration of calls
Rating Revisions
Shareholder agreements
Joint venture agreements
Family settlement agreements
Fraud/defaults by promoter or key managerial personnel
Corporate debt restructuring
One time settlement with a bank

Additionally SEBI has listed events and developments that companies must consider disclosing based on their materiality. Such as…
Capacity addition
Product launch
Loan agreements
Effect of changes in regulatory framework
Litigation

Now SEBI has, via a circular,  also prescribed how much detail companies should provide in such disclosures – to ensure transparency and to offer guidance on what needs to be disclosed! So for instance

In an acquisition or amalgmation – the company has to, besides disclosing price, rationale, regulatory requirement etc…also inform shareholders whether the acquisition is a related party transaction and whether the promoter has any interest in the entity being acquired. And whether the transaction is being done at “arms length”

In the sale of a unit – the company needs to provide details on the unit’s contribution to revenue and networth, whether it’s a related party transaction and is being done at arms length

In the case of a preferential issue the names of all participating investors have to be disclosed

Detailed disclosures are also required in ADR/GDR & FCCB issues – for instance the company must disclose if it has defaulted on paying the FCCB coupon and what corrective measures it is undertaking

Any special right/interest/privileges attached to debt securities must be disclosed

As mentioned earlier - any restriction on transferability of shares must be disclosed alongwith reasons and details of affected shares

In the case of shareholder agreements, JV agreements or even family agreements – companies must now names of parties to the agreement, purpose, affirmative rights being granted, relation to promoter and much more

Shareholders will also get details on frauds by key managerial personnel, details on corporate debt restructuring or one time settlement with a bank

SEBI has also provided guidance on how companies are to determine the time of disclosure ie; when an event or development has occurred. For instance some events such a rights issue – will have to be disclosed at the time of the board approval. But SEBI has made no reference to when a company must disclose an acquisition. Often media reports on an acquisition that is in negotiation stage and companies tend to deny the news or refuse to offer comment. SEBI’s guidance note does not clarify whether companies can continue that practice or must disclose more. That could prove to be a sticky area.

That said companies now have more clarity than before on what to disclose and how…and shareholders will benefit from the transparency.
 
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