The aborted Satyam-Maytas deal, according to which Maytas was valued at a whopping $1.6 billion, has prompted the ministry of corporate affairs (MCA) to contemplate on a body on lines of the Institute of Chartered Accountants of India (ICAI) to regulate professional valuers.
The ministry feels that corporate valuation needs to be regulated. The government should fix some basic guidelines that companies must follow while conducting a valuation exercise, it opines.
In this regard, it has constituted a government-industry committee under Amit Mitra, secretary general, Federation of Indian Chambers of Commerce and Industry (Ficci) to frame some guidelines. The committee will submit its recommendations by February-end.
As per existing practice, corporate valuation is done by chartered accountants, merchant bankers, auditors and company secretaries. According to an official from the ministry of corporate affairs, the government does not want to interfere in a market-determined exercise; it merely seeks to frame a broad set of do’s and don’ts.
Premchand Gupta, minister of corporate affairs, said, “There is a need for tightening valuation norms. Initial public offerings (IPOs) are often priced quite high, as per the whims of respective companies. At present, corporates don’t need to follow any guidelines, especially in the case of IPOs.”
There is a need to have a set valuation of assets, he added. There are problems when one party feels that the share of a company is worth Rs 20 and another party feels that it is worth Rs 200, he argued.
After the abolition of the Controller of Capital Issues (CCI), the Securities Exchange Board of India (Sebi) was established in 1992 to regulate the capital market. Sebi then decided to give freedom to companies in matters of valuation.
At present, Sebi has the monitors and regulates activities of bankers, stock-brokers, portfolio managers, and other inter-mediaries related to the stock markets. But, controls over pricing of shares lies solely with respective corporates.
According to Ficci’s Mitra, there are no set guidelines for corporate valuation. This is contrary to the existing accounting standards for chartered accountants and secretarial standards for company secretaries.