Cos take a step backward in transparency

Faster dissemination of news and transparency in operations are vital for the smooth functioning of the stock market, but these basic aspects are conveniently ignored by companies. Nestle India, the Indian subsidiary of Swiss multinational Nestle SA, has proved that keeping investors informed about the developments in the company is not its priority. The Bombay Stock Exchange BSE has already sent three show-cause notices to Nestle asking it to explain why the company did not inform the stock exchange about the resignation of its managing director.

Thelisting norms of the stock exchange make it mandatory for a company to inform exchanges about crucial board meetings where important decisions are taken. With Nestle which is already facing facing insider trading charges failing to inform the exchanges about the crucial changes within the company, the Nestle share had a roller-coaster ride much to the chagrin of investors. The saga of insider trading has flummoxed investors with the chief of Rs 1,600 crore Wipro group A H Premji going on record saying that he was always buying shares of his own company from the market.

Similarly, Saurashtra Cement which is facing a takeover threat from the Autoriders group also quietly made a preferential issue three months ago.

The market regulator SEBI is probing the issue which led to a rise in the share capital and promoters stake in the company. 8220;Prima facie it appears there is lack of transparency in the issue,8221; said a SEBI official.

Concerned over the lack of corporate governance and transparency, SEBI hadrecently tightened the disclosure norms by asking companies to disclose financial performance on a quarterly basis. It also expanded the list of material events which will have an impact on a company which need to be intimated to the stock exchange immediately. The existence of several companies which raised money from the capital market in the last four years is also doubtful. BSE sources admit that several companies 8212; over 1,000 firms out of around 6,500 companies listed on the BSE 8212; have not finalised the accounts for the year 1996-97. This means investors have not received any information about the financial performance or operations of such companies. The question of dividend payment arises later.

Similarly, investors are in the dark about the utilisation of money collected through public issues. As per a report of Prime Database, 4,356 companies had raised nearly Rs 53,110 crore through public issues in the last five years. With such a whopping amount coming to corporate coffers, there is nowonder several allegations of fund diversion are doing the rounds. This has prompted SEBI to consider asking companies to declare fund utilisation twice a year as against the current practice of once a year. But many companies are yet to even publish a yearly statement on utilisation of funds.

Even though trade bodies like CII and FICCI and financial institutions talk about corporate governance and more transparency, it has not yet percolated down to thousands of companies all over India. Even nominees of institutions on the boards of companies remain silent spectators when promoters initiate moves for fund diversion, making interest-free loans and stripping assets.

8220;Rescheduling of loans is the new sop8217; from institutions to some favoured business groups. FIs have bent backwards and sacrificed Rs 38 crore by forgoing interest in the bail-out of the Modern group. Investors are bewildered by this magnanimity of FIs,8221; said a fund manager.

Another worrisome aspect is the lack of basic information in thebalance sheets and erosion of appraisal standards. The balance sheets of some companies are classic examples of how to hide basic facts8217;. There are cases when auditors find that figures given by them are misquoted in the balance sheet. One steel company even blamed printing mistakes for some major errors in the balance sheet. So much for transparency.