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MNC delisting to hurt investor confidence, says panel

BS Economy Bureau

The parliamentary standing committee on finance has said that the delisting of shares by multinationals will erode investor confidence and has asked the government to lay down a clear policy on this issue.

It has also said the government should not concede their requests to defer their initial public offerings.

The report of the committee tabled in Parliament says, "It could be seen that the companies in respect of which the stipulated time for offering a part of their equity to the public is about to be over have not come out with a public issue, instead they approached the government for removal of the condition by citing interalia the continous losses suffered by them".

According to information furnished by Sebi to the standing committee chaired by N Janardhana Reddy no multinational has come out with an IPO during the last five years to comply with the government guidelines.

The list of companies which were granted FDI approval subject to the divestment condition included Hindustan Coca Cola Beverages Holding Ltd which has recently approached the foreign investment promotion board with a request to waive-off the divestment clause.

Similarly, BG Plc, UK, which had proposed to divest 48 per cent stake by September 2000 has said that it had voluntary taken upon itself the divestment clause and the FIPB had not imposed any such condition.

The others which have undertaken the divestment clause include Wimco Petrogas which has to divest 26 per cent stake by December this year, Esso Petroleum (26 per cent by March 2003) and Shell India which has sought a removal of the 26 per cent divestment clause which is due to be effected by November 2004.

PepsiCo India Holding had also undertaken 49 per cent divestment through downstream investments but said it is not required to do so as it has not undertaken that activity.

But the committee has said in its report "to give a fillip to the sagging capital markets, the government should not concede to their request for removal of such clause or extension of time for complying with the stipulation on any grounds thereby ensuring that these companies tap the markets within the prescribed period".

It also said that the committee was "distressed to note that several MNCs have started delisting from stock exchanges" and the practice will erode the investors' confidence.

Recently, a number of MNCs like Reckitt Benckiser, Gillette, Cadbury's, Otis, Carrier Aircon and Philips have initiated the process of delisting from Indian bourses.

The Securities and Exchange Board of India is also looking into the issue.

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