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Disclosure norms set to be tightened further

Janaki Krishnan

The Securities and Exchange Board of India is planning to get tough with companies coming to the market to access public money in terms of disclosure requirements.

The accent is on material disclosures, which are not necessarily of a financial nature and information required now is not restricted to those which is not more than six months old.

A top official at Sebi said the regulator is progressing towards a regime more in line with the Securities Exchange Commission of the US, whose stringent disclosure requirements necessitates total transparency from the company which is accessing public money.

The Sebi move has also led lead managers to issues undertake a more thorough due diligence than was formerly done.

A recent example is that of Arvind Mills' rights issue where Sebi observations on the draft prospectus also focused on the company's ability to sustain earnings which would pay off its remaining creditors (after the restructuring scheme) as also the hit which the lending institutions would have to take as a result of the restructuring. The company's rights issue is yet to open.

As a regulatory authority, Sebi does not approve or reject offer documents.

Its role is restricted to ensuring that the company coming to the market complies with the regulations specified and that the necessary information is incorporated in the prospectus. The actual level of disclosure and how it is to be disclosed is left to the merchant banker.

However, there have been quite a few instances recently where Sebi's request for information has forced the lead manager to be more questioning in its due diligence process.

According to Sebi officials, "it is not enough to give information to investors regarding the financial status of the company - they should also have an idea about what sort of promoters are behind the company and whether they keep to their commitments."

An earlier instance was that of Tata Finance - which had a rights issue towards the end of May - where Sebi insisted that the company should furnish information regarding the losses made by it in secondary market transactions as on March-end 2001.

Sebi's contention that the event, occurring after the last balance sheet date - was "material" enough to warrant disclosure to investors.

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