Uniform norms for valuation of assets on cards

NEW DELHI: With mergers & acquisitions continuing to be in vogue with India Inc, the government plans to usher in transparency in the way valuation of corporate assets is done. Asset valuation, which holds the key in determining the price of M&A deals, presently does not have any recognised standards to follow. In an attempt to check instances where shareholder interests are compromised due to incorrect valuation of company assets, the new Companies Bill proposes a framework wherein corporate valuations will be done in a standardised manner.

Under the proposed scheme, valuations will be done by government recognised valuers, who shall have expertise in getting company���s assets calculated at a fair price. In contrast to the present trend where companies are free to hire any expert to determine their asset worth, the new law proposes to introduce a class of professionals who shall be trained and accorded the government���s approval to do the valuations. A senior official in the ministry of corporate affairs said that determining the value of company���s intangible assets like goodwill and brand value should be done in a uniform way as per set standards.

In the absence of recognised norms of valuation under the present law, companies have taken differential ways of arriving at a fair value for their assets. However, the question as to if corporate valuations for any M&A deal has affected shareholders��� interest is debatable.

According to KPMG executive director Sandeep Dhupia: ���Corporate valuations for M&As are generally transparent as they are determined at an arm���s length between two willing companies.��� Even though there are no specific guidelines on valuation rules, he added any rules in this regard should be pragmatic and flexible so that it does not affect corporate interests. On the effectiveness of the proposal, officials say standardising the norms will safeguard the interests of investors who often lose out in high stake corporate deals.