The Hindu Business Line : Accessing capital market — Malegam panel moots tougher norms

A PROMOTER or director of a company debarred from accessing the capital market is likely to carry that stigma over to any other company that they may join.

Companies whose promoters and directors have a previous record of restricted access to the markets will not be able to raise funds through public issues even if they join a new company, according to the recommendations in the Malegam Committee report.

Any person in control of the company, even if not designated promoter or director would also fall under this restriction, states the report.

Also, where promoters have acquired equity in the company for consideration other than cash and if revaluation of assets or capitalisation of intangible assets is involved in such transaction, in three years preceding the filing of draft offer document, this will not be considered for computation of promoters' contribution. This clause also holds good if the promoters' equity has resulted from a bonus issue by capitalisation of revaluation reserves or reserves without accrual of cash resources.

Further, the recommendations state that the relevant guideline should be amended to read, "When shares are issued on a preferential basis to promoters, their relatives or associates for consideration other than cash, the valuation of the assets in consideration for which the shares are issued shall be done by an independent qualified valuer. In case a stock exchange, where the shares are listed, has any concerns about the appropriateness of the valuation, it may get a valuation done by any other valuer and for this purpose it can obtain the necessary information from the company by using its powers under the general clause in the listing agreement."

Merchant bankers to an issue would be considered as "associates" if there is a common director on the boards of the issuer and merchant banker. Nominee directors of financial institutions are exempt from this clause, according to the report.

The 326-page report has extensive details on the disclosures to be made in the offer documents of companies, format of abridged prospectus and format of advertisements related to public offers. The Securities and Exchange Board of India (SEBI) board has already approved some of the key recommendations of the committee and relevant amendments to guidelines have been made. This is series VII of the Review of the Disclosure and Investment Protection guidelines.

SEBI had appointed a committee to study disclosure requirements in offer documents. The committee was headed by Mr Y.H. Malegam and the report is now open for public comments.

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Accessing capital market — Malegam panel moots tougher norms