Government forms committee to regulate corporate valuation

The government, in an attempt to bring some regulation in the business of corporate valuation, has appointed an expert committee, which will look into the detailed provisions of the proposed Valuation Professionals Bill. The Bill is expected to be introduced in the coming session of Parliament.

The seven-member expert committee headed by Amit Mitra, the secretary general of the Federation of Indian Chambers of Commerce and Industry, will meet in a few days to deliberate and take a collective view on the various facets of the draft Bill. It is likely to submit its recommendations to the government by February-end.

The Companies Bill, 2008, which has been passed in the Lok Sabha and is now with the Parliamentary Standing Committee, provides for a framework to enable fair valuations in companies and hence its calls for having professional valuers. At present, corporate valuation is done by auditors, merchant bankers, company secretaries or chartered accountants for initial public offerings, mergers and amalgamations, strategic alliances and corporate restructuring etc.

“This profession has to be regulated,” said Minister of Corporate Affairs Premchand Gupta. “I don’t mean that the government should have complete control but there shoulad be some basic guidelines to be followed,” he added.

The government also wants to tighten the valuation norms for pricing public issues. In the existing system, companies don’t need many permissions to go to the market, but, said Gupta, more restrictions are required, for instance, in the valuations of initial public offers.

Justifying the need for more regulation, Gupta said that in the past five to eight years, initial public offers were priced quite high and many have seen their price dropping by as much as 40 per cent on the opening day of trade, with some shares now quoting at less than 10 per cent of the issue price.