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Curbs on auditors valuing selloffs

S Ravindran

The government is changing its divestment norms. It has decided against accepting the recommendations of valuers who double up as auditors to a bidding company.

As a first step, the government proposes to introduce a clause in shareholders agreement with strategic investors prohibiting the auditors of any of the bidders from valuing state-owned corporations.

This rider comes into force when the government decides to sell its remaining 26 per cent stake in the Shipping Corporation of India after initially bringing it down from 80.12 per cent.

The draft shareholders agreement for SCI says, "Each party agrees that the following entities and their successor entities are acceptable to the party as the independent valuer to be appointed; provided however that such entity shall not be the auditors of the company or of the strategic partner at the time of such intended sale."

The government's latest move seems to be a fallout of the Enron-Andersen fiasco. Andersen was the auditor as well as a consultant to bankrupt energy and communications company Enron Corp.

It is accused of having turned a blind eye to Enron's off-balance sheet transactions which it should have brought to the notice of Enron's shareholders as its auditor.

US regulators have accused Andersen of ignoring these transactions as it was keen on retaining the plum consultancy assignment.

"Such a rider was not present in any of the of the other divestments and the latest condition has possibly been incorporated keeping the Enron-Andersen episode in mind," said a merchant banker who has been a part of other major divestment programmes.

The Centre is considering several divestments this financial year, including the big ticket ones of Hindustan Petroleum Corporation and Bharat Petroleum Corporation. The new rider is expected to be incorporated in future divestments as well.

The government has proposed four possible valuers for SCI: Deloitte Haskins & Sells, KPMG Peat Marwick, Ernst & Young and PricewaterhouseCoopers, but has said that other names could be added later.

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