The Hindu Business Line : DCA talks soon to harmonise share valuations

THE Department of Company Affairs (DCA) will soon initiate discussions with regulators such as the Reserve Bank of India and the Securities and Exchange Board of India (SEBI) to "harmonise" the various share valuation approaches prescribed by the different regulators under their respective regulations.

"We will initiate talks with RBI and other regulators to see if there could be harmonisation of valuation methods. In most cases, we are still going by the valuation rules prescribed by the Department of Economic Affairs (old CCI formula). This requires a review," a senior DCA official told Business Line here.

The biggest beneficiary of such a harmonisation exercise, if carried out, would be the average investor, various experts on share valuation said. "We have different regulators who stipulate different methods for valuation of shares in connection with amalgamations, mergers, demergers, acquisitions and buyback of shares. The confusion that prevails in such a situation is not in favour of the average investor, who is unable to take an informed opinion. We need a harmonised approach to valuation," Mr S.R. Mehta, Chartered Accountant, S.R. Mehta & Co, told Business Line.

Giving illustrations of different approaches adopted by various regulators, Mr Mehta highlighted that RBI insists on "old CCI formula" for shares purchased by non-resident from resident. The formula specified for a resident to buy shares from a non-resident is different from the "old CCI formula". In case of delisting, the capital market regulator requires adoption of reverse book-building method. Even as the DCA intends to initiate discussion with other regulators on the matter of "harmonising" valuation norms, India Inc and a section of professionals have urged the department to refrain from "over-regulation". An expert group's report on valuation principles for corporate assets and shares is under the consideration of the DCA.

"A final view on the report can emerge only after consultations with all the regulators," DCA official said.

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