Non-disclosure of M&A value hurts investor interest: experts

Non-disclosure of the deal value leads to unnecessary speculations about the size and other details of the transactions

Non-disclosure of financial details in M&As, including companies like RIL, has come under criticism by market experts who are now demanding rules for mandatory disclosures of deal value and other terms.

Mukesh Ambani-led Reliance Industries group on 10th June announced its entry into the insurance business through buyout of Sunil Mittal-led Bharti group's majority stake in Bharti AXA Life Insurance and Bharti AXA General Insurance.

However, the companies did not disclose the deal value, even as it involved acquisition of a stake as high as 74% in each of the two Bharti ventures.
In most of the merger and transaction transactions, the deal values are among the most important details and generally they are made public by the concerned companies.

However, at times, the companies tend to keep the deal values a secret, especially in the initial stages, and make them public only at a later stage or after the final closure of the deal.

Reliance and AXA said the "transaction is subject to negotiation and entering into legally binding agreements between RIL, RIIL (Reliance Industrial Infrastructure, which is a group company of RIL) and AXA."

Despite attempts by the media, the companies did not disclose the deal value and said it would be announced later. However, market experts have criticised the non-disclosure of valuation and other financial terms of the deal, saying that it was against the investor interest.

"Making public the deal value is very important. Reliance and Bharti are the top companies of the country. So, they should have set the benchmark to make the transaction open," SMC Global Securities' strategist and research head Jagannadham Thunuguntla said.

Recalling an earlier deal, he said that Hero Honda (in connection with the exit of the Japanese partner Honda from the venture) had also not made public the deal value and had to bear the investor brunt in the market.

Echoing similar sentiments, Geojit BNP Paribas Financial Services assistant VP Gaurang Shah said: "Shareholders have every right to know about the bits and pieces of a deal."

He added, "Not disclosing the deal amount may be in the larger interest of the company, but shareholders should not be kept in the dark."

Shah went on to say that there should be some ordinance with regard to making public the deal value, kind of deal, among other factors.

Experts also said that non-disclosure of the deal value leads to unnecessary speculations about the size and other details of the transactions.

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Transactions by cheques up marginally in April: RBI

In April, the Mumbai region reported the highest number of cheque clearances. Banks cleared a total of 195.1 lakh cheques with a value of over Rs1.49 lakh crore

Cheque transactions worth over Rs8.66 lakh crore were carried out in the country during April 2011, a growth of over 0.7% from the same month last year.

Banks had cleared cheques worth almost Rs8.60 lakh crore in April 2010, as per the latest data from the Reserve Bank of India (RBI).

However, the total number of cheques cleared during April fell by over 6.6% against the same month of last year.

A total of 1,097.5 lakh cheques were cleared by the banks during the month under review compared to 1,175.3 lakh in the corresponding month of 2010.
In April, the Mumbai region reported the highest number of cheque clearances. Banks cleared a total of 195.1 lakh cheques with a value of over Rs1.49 lakh crore, it said.

This was followed by Delhi region which reported 129.3 lakh cheques being cleared with a total value of Rs1.23 lakh crore. In third place was the Chennai region with 60.7 lakh cheque clearances worth over Rs48,500 crore, it added.

The latest marginal rise in the value of transactions by cheques comes after banks reported a fall in numbers during the last fiscal.

The value of cheque transactions had declined by 2.6% to Rs101.33 lakh crore in 2010-11. Only Delhi and Bangalore, among the major centres, had reported a rise in value of clearances during the last fiscal.

However, the total number of cheques cleared by banks across the country had grown marginally by 0.4% in 2010-11. Over 1.38 crore lakh cheques were cleared by banks across the country last fiscal as against 1.30 lakh in 2009-10.

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Oil ministry, DGH bent rules for RIL in KG-D6: CAG

The CAG was asked to audit the accounts of Reliance after allegations of 'gold-plating', or artificially inflating the cost of development of gas field costs were levied by the Anil Ambani Group

New Delhi: The Comptroller and Auditor General (CAG) has said the oil ministry and its technical arm, the Directorate General of Hydrocarbons (DGH), bent rules for Reliance Industries (RIL), but did not conclusively say if the Mukesh Ambani firm overbilled the government on its KG-D6 gas fields to adversely impact government revenues, reports PTI.

In a draft audit report on the KG-DWN-98/3, or KG-D6, block, the CAG said the DGH allowed RIL to hike capital expenditure for developing Dhirubhai-1 and 3, the largest of 18 gas finds in the block, by 117%.

"The increase in cost from $2.39 billion in the Initial Development Plan (IDP) to $5.196 billion in the Addendum to the Initial Development Plan is likely to have a significant impact on the government of India's financial take.

"However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise, of the increase in cost, both overall and in respect of individual line items," the CAG said in a draft report sent to the oil ministry for comments.

An operator like Reliance is allowed to recover all capital costs on developing a field from revenues earned from the sale of oil or gas before profits are split between the stakeholders, including the government.

The CAG was asked to audit the accounts of Reliance after allegations of 'gold-plating', or artificially inflating the cost of development of gas field costs were levied by the Anil Ambani Group.

The premier auditor, whose report will be tabled in Parliament after incorporating comments from the oil ministry, said RIL never had the intention of developing the KG-D6 gas fields as per the initial cost estimates as it did not initiate tendering for equipment as per the original plan.

"Most procurement activities were undertaken late, in line with the schedules of the IDP of May 2004, clearly evidencing that the operator had no intention of complying with these timelines," the draft report said.

"By contrast, activities in respect of items in the AIDP were initiated even before the submission/approval of the AIDP," it said.

The CAG said the submission of an addendum to the IDP instead of a revised comprehensive development plan, as well as lack of adequate details with regard to the Phase-II development cost of $3.3 billion, made it virtually certain that the operator will submit more addendums.

"The DGH also approved the AIDP, without questioning why the operator did not take action in line with the already approved IDP," it said.

The report has also said that the ministry and DGH allowed RIL to enter successive exploration phases without the stipulated relinquishment of area and then allowed it to declare the entire contract area as "discovery area".

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