In India promoters – or controlling shareholders – can borrow money using their stock as collateral. It’s not a new practice – but what is surprising is that the value of these pledged shares as a proportion of market capital fell to its lowest level in over four years in the quarter ended this September.
With corporate debt climbing and putting the spotlight on banks’ nonperforming assets, what’s going on?
By Amit Tandon
The role of institutional investors in Indian corporate governance is evolving as shareholders realize that they don’t just have the right, but a duty to engage with their portfolio companies.
This newfound role has helped outside shareholders declare their displeasure with promoter control and management-proposed resolutions to which minority investors do not stand to gain. In India, this dynamic must grow to create balance in the corporate governance hierarchy, which company boards are responsible for in developed markets.
By Pavel Morozov of State Solutions
Russia’s heavily trailed privatisation programme, the scale of which has not been seen since the controversial loans-for-shares privatisations of the 1990s, has so far not delivered on expectations. Assets worth $13bn were set to be sold in this year alone, but now it looks like the Federal Treasury will be receiving $1bn at most. And according to treasury figures, just 4 per cent of privatisations planned for the first half of 2013 were implemented, with only $500m in assets sold.
Officials have blamed recent global market conditions. But the reality is more complex.
By Bruce Misamore
Ten years ago this month my friend and business colleague, Mikhail Khodorkovsky, was arrested at gunpoint in Novosibirsk – the start of a chain of state-sponsored intimidation and corruption in Russia. There is no doubt that the hand of Vladimir Putin and the Kremlin was very much at the steering wheel for this very public and televised event. The shock of this political act reverberated around the world – no more so than in the boardroom at Yukos Oil Company headquarters.
From probes into a $750m AgustaWestland helicopter contract to an alleged land grab involving relations of Sonia Gandhi, leader of the ruling Congress party, corruption in India comes from the top down.
A new report from the Economist Intelligence Unit and Kroll, a US risk consultancy, has found that 69 per cent of India’s companies were affected by fraud in the last year with an average cost of 1.4 per cent of revenues.
The Hindu, established in 1878, is one of the most respected newspapers in India. But a boardroom tussle has brought its family owners back into key editorial positions, raising questions about the quality of the press and governance in the world’s largest democracy.
Transparency International’s latest report on emerging markets companies has slammed Chinese companies for their lax reporting standards, comparing them unfavourably with the relatively more open Indian corporate scene.
Faring little better than their Chinese counterparts were a handful of Middle Eastern companies included in the report.
Normally carousels are for children but in Poland they are enjoyed by grown-ups, particularly when it comes to top jobs in companies where the state treasury has a significant stake.
It has become a hallowed tradition in Poland for every new minister to clear out senior executives installed by his predecessor and put in his own people. Although Poland’s Civic Platform government promised to tone down the practice when it came to power six years ago,it is still going strong – as evidenced by a purge at copper miner KGHM.
By William Wilson
In recent years, both Chinese and Russian stocks have sold at astonishingly low discounts relative to other emerging markets. While the price-earnings multiple (PE) for the MSCI Emerging Stock Index is hovering around twelve, Chinese and Russian stock multiples have collapsed toward mid-single digits. For the other Brics, India and Brazil, investors have been willing to fork out twice as much money for each dollar of earnings.
Good news for the economy, good news for investors; bad news for anyone looking to make a quick buck scamming corporate India. India’s upper house of parliament has passed the Companies Bill 2012, which will now go to the president for approval.
In a country where an estimated 80 per cent of businesses are in the hands of ‘promoters’ – founders and their families – governance and control are big issues. The Companies Bill introduces new rules on boards, auditing and fraud that are expected to improve transparency and draw investment into India’s beleaguered economy.
Rana Kapoor, CEO of Yes Bank
When the Hay Group teamed up with the Economic Times, the Indian newspaper, to indentify the best company boards in India, they assembled a panel headed by Kumar Birla, the head of the Aditya Birla Group, and asked them to select a list of ten. Lots of contenders, you would think.
But the committee could only find five boards that made the cut. What’s the problem?
Compromise is often seen as a sign of weakness in Russia so it’s encouraging to see one of the country’s most powerful men giving ground in a high profile conflict over corporate governance. Six months after denying that Rosneft had any obligations to minority shareholders in TNK-BP’s listed unit, Igor Sechin, the chief executive of Russia’s state oil company, appears to be backing down.
By George Dallas of F&C Investments
Reeling from the shock of the $2bn accounting scandal at Satyam Computer Services in 2009, Indian regulators have responded with a plethora of initiatives to rebuild investor confidence in the country’s capital markets.
These were welcome developments but have resulted in a somewhat disjointed governance regime. In January, the Securities & Exchange Board of India (SEBI) published a public consultation paper on proposed revisions to the corporate governance requirements for listed companies in India. The idea is to create a more coherent and progressive corporate governance framework, with the aim of re-establishing India as a destination of choice for international investors.
Regulations introduced last week obliging Russian state companies to pay at least 25 per cent of their profits in dividends look like a step in the right direction for long suffering minority shareholders.
But it appears that state utilities are simultaneously taking an even bigger step backwards, launching yet another round of state-funded secondary share issues that raise questions about the government’s commitment to corporate governance.
Indonesia should consider revamping its corporate governance standards in the wake of the Bumi affair.
Even though the case involves a dispute among private shareholders, the government must tread carefully because the affair is seen as “a bad precedent” for the country.
That’s the view of Chatib Basri, chairman of the government’s investment coordinating board, (pictured) who told beyondbrics of his concern about Bumi’s impact on the investment climate.