Investors frown on borrowing limit raises

Company proposals to meet capital needs through increased borrowing should only be valid for a year, feel institutional investors.

Any such proposal for increasing debt or borrowing limits are currently valid in perpetuity, unlike equity capital raising proposals which are valid only for a year; noted a report from proxy advisory firm Institutional Investor Advisory Services.

"Increasing their borrowing limits allows companies to carry out their strategic plans for the company without making adequate disclosures and taking permissions from shareholders. …71 per cent of investors agree that debt resolutions should have a one year time frame," said a report based on a survey of foreign and domestic investors across categories including sovereign wealth fund, hedge fund and mutual fund.

The 2014 report titled 'Institutional investors' attitudes to corporate governance' was carried out in association with Reliance Mutual Fund.

The report also noted that investors are also concerned about opaque related party transactions, with 76 per cent of responders flagging it as the most important corporate governance issue in promoter managed firms.