Corporate governance, IPO pricing on Sebi radar

Jan 12 2014, 10:13 IST
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UK Sinha on Saturday indicated that the regulator might tighten corporate governance rules UK Sinha on Saturday indicated that the regulator might tighten corporate governance rules
SummaryTo tighten rules with aim of restoring investors’ trust.

Highlighting the need to regain investors’ trust in the capital market, Securities and Exchange Board of India (Sebi) chairman UK Sinha on Saturday indicated that the regulator might tighten corporate governance rules, take a hard look at the pricing of shares during an initial public offering and come down heavily on Ponzi schemes duping investors.

Reviewing the corporate governance rules and aligning it with the new Companies Act is high on the agenda for the Sebi and it will be taken up at the next board meeting scheduled in February, Sinha said on the sidelines of a conference organised by Association of National Exchanges Members of India in New Delhi.

“We had put out a draft paper (on corporate governance) in January last year. And now the Companies Bill has been passed. The board will take it up at the next meeting,” he said, without divulging details.

In its discussion paper last year, Sebi highlighted various governance issues, including alignment salaries of top officials of the firm with the performance and goals of the company and a mandatory disclosure of the ratio of remuneration paid to each of their directors and their median staff salary. Similar provisions have been made in the new Companies Act. Sebi perceives the average remuneration of CEOs in certain Indian companies are unjustifiable and far higher than the remuneration received by their foreign counterparts. Sebi has also prescribed adoption of global practices without increasing the cost of compliance of firms.

Pointing to stricter enforcement in advanced nations, Sinha said the penalties against CEOs and CFOs are getting higher and higher. “Sebi is following the same example,” he said.

Emphasising the need to restore investor trust, Sinha said, “More than two-third of IPO shares are ruling below the issue price. Even after adjusting for indices, IPO prices are ruling below the issue price. There is something wrong. We are looking at it seriously.”

While the introduction of call option for IPOs on the opening day has reduced volatility, the Sebi chief doubted the way IPOs are being priced by merchant bankers. “We have placed certain obligations of merchant bankers,” he said, adding bankers need to be careful in verifying facts such as the company’s plant and machinery and their locations before pricing their IPOs.

Referring to the menace of Ponzi schemes, he said the government ordinance has enabled Sebi to crack down on errant schemes. “We have passed recovery orders and orders

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