A. I.M. : The Investor’s Guide to a Listed Company

 

 

Last month SEBI issued a discussion paper on Annual Information Memorandum (AIM) to be filed by the listed companies in India. Genesis of the paper lies in the background that under the present system, companies file a detailed memorandum for the information of the investors only at the time of launch of the Initial Public Offer (IPO). Post IPO, companies are required to submit various information through notifications to Stock Exchanges and Regulators. There is no single point reference document for the information of the investors. The happening of material events after the listing of the security is known to the investors over a period of time, and investors also find it difficult to access all relevant information for the purpose of making an informed investment decision.  This situation specially affects the secondary market investors.

In light of the above, need was felt for introduction of an annual AIM to be filed by listed companies, and accordingly, SEBI launched the discussion paper in the matter. As per the discussion paper, frequency for preparation of AIM shall be yearly. For companies which are planning IPOs, the requirement of AIM would commence with the IPO. This would require that the disclosures made by the companies at the IPO stage be updated on an annual basis so as to ensure that at any point of time, updated information about them is available in public domain. AIM shall be disseminated within 135 days from the end of financial year. AIM may be disseminated electronically by uploading the same on the company’s website and simultaneous filing with stock exchanges.AIM shall be approved by Board of Directors at their meeting prior to dissemination. SEBI has set a implementation timeline of financial year 2014-15 for the top 200 companies based on their market capitalization as on March 31, 2014, and FY 2015-16 for all others listed companies.

Considering, the spirit of making the AIM as one point source for all the important information. it would be good if the annual AIM includes some of the other critical information related to the happenings during the related Financial Year, viz:

(1) Credit Rating of the company, risk concerns raised by rating agency and response towards the same by the company.

(2) CIBIL Report scores (as on last March 31) of the Board of Directors along with comments on any negative information appearing in the reports.

(3) Brief Summary of the CIBIL Report (as on last March 31) of the company along with any negative information viz. overdues etc) appearing in the report, and comments on the same by company.

(4) No. of instances of Letter of Credit devolvements, Amount involved; Bank Guarantees invocations, Amount Involved; and clarifications from the company on these devolvement/invocations.

(5) No. of defaults incurred but the company in making payments to its lenders and current position as on the date of approval of AIM by Board.

(6) No. of instances of ad-hoc limits utilized by the company from lenders, justification from the company on the same, plans for meeting such requirements in future.

(7) Workings of Debt Equity Ratio, Total Debt to Total Liabilities Ratio, Current Ratio and Asset Coverage Ratio (Book Value Basis and Market Value Basis) [SEBI may also prescribe the method for calculation of these ratios so that there is no ambiguity].

(8) Tabular information on financial performance of the subsidiaries, associate companies, joint ventures and SPVs [SEBI may prescribe the tabular format].

(9) Details of any overdues/defaults/devolvement/invocation under the financial facilities availed by subsidiaries/associates from banking sector, present status of the same.

(10) Undertaking from the Managing Director that company does not foresee any sign/need for financial restructuring in the next financial year OR if yes, then explanatory note on the same.

(11) Note on any Financial Restructuring approved by lenders in the past five years and current status of implementation and compliance with the terms and conditions.

(12) Explanatory note on resignations of key executives viz. CFO, Head Treasury, Directors etc.

(13) Tabular information on instances of name change of the company and need for the same.

(14) Copy of RoC search report regarding the charge created on the assets of the company.

(15) Negative comments appearing in the Stock Audit Report and clarification on the same from company.

(16) Forex Risk with the company and addressing the same under the Hedging Policy and measures adopted by the company.

(17) Financial Projections for next two years (Stand-alone and Consolidated basis) along with key ratios as mentioned above and also the Debt Services Coverage Ratio,

(18) Comparison of actual financial performance for the last financial year covered in AIM with the projections for the same made during previous year. Note on achievements/non achievements of the financial projections with clarifications.

(19) Suggested names of the competitors in the local and international markets, which the management feels, can be considered by investors for comparison analysis.

(20) Note on any particular concentration risks viz. Any particular customer forming more than 25% of the sales, Any particular supplier forming more than 25% of the total procurement, Exposure of the company to risk associated with the volatility in commodity (forming more than 40% of the production cost) pricing etc.

These suggestions if implemented would be helpful for the entire financial sector including the secondary market investors and lenders, in understanding the financial strengths and hidden weaknesses of the company. The serious implications of the information under these suggestions, would bring more discipline in financial management by the listed companies.