COVID-19 Impact: One More Box To Check For Listed Companies?

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COVID-19 Impact: One More Box To Check For Listed Companies?
Milan Mody, Chintan Ghelani - 01 June 2020

The novel coronavirus pandemic has severely affected the global economy and the Indian economy also has not been able to insulate itself from its disruptive impact. The lockdown has become the new normal, with the country currently amid lockdown 5.0. Businesses are disrupted like never before and all corporates are making their best efforts and planning extensively to survive this unprecedented crisis. For revival of businesses and economy, the government, RBI and other regulatory bodies have doled out various relaxations and stimulus packages.

In above context, it has become imperative for the listed entities to disclose credible and useful information on impact of pandemic on its operations and financial position at present as well as its likely impact in foreseeable future in a cogent and timely manner so that the investors and stakeholders can have proper perspective while taking decisions on investments.

Globally, regulators have come out with various guidelines for the public interest entities and even for auditors for disclosing important information of the impact of the pandemic. Corporates across the globe have been making disclosures regarding the impact of the pandemic on financial positions; capital and financial resources, liquidity, demand, internal financial controls etc. In India, the capital market regulator, Sebi, has been acting proactively and has already given several reliefs to the listed entities in terms of timeline for filing various reports and disclosures as well as publishing financial results. Further to those steps, Sebi has also come out with guidelines on disclosure of information on the impact of pandemic on listed entities. Sebi has pointed out that even under the current framework, listed entities are required to disclose important information which may have bearing on operation/performance. Sebi has noted that while publishing its results, many listed entities have made disclosures primarily intimating shutdown of operations owing to the pandemic and resultant lockdowns; some have provided information relating to actions taken towards sanitation, safety. However, the number of entities that have disclosed the financial impact is small.

Towards this end, Sebi has urged listed entities to endeavor to ensure that all the investors have access to timely, adequate and updated information and entities are encouraged to evaluate the impact of the COVID-19 pandemic on their business, performance and financials, both qualitatively and quantitatively and make appropriate disclosures, to the extent possible. Sebi has also come out with an illustrative list of information for disclosing, subject to materiality, which include information such as impact on the business, ability to maintain operations at factories/units/office; schedule for restarting the operations, steps taken to ensure smooth functioning of operations, estimation of the future impact on its operations, impact on capital and financial resources, profitability, assets, liquidity position, supply chain, demand, ability to service debt and other financing arrangements, internal controls, impact on account of possible non-fulfilment of conditions of material contracts/agreements which are existing at present.

As per Sebi, the above list is only illustrative and not exhaustive. Further, it has cautioned the listed entities to avoid resorting to selective disclosures and to adhere to the principles of transparency and best corporate governance. It has also suggested that over some time listed entities should revisit, refresh and update its previous disclosures.

Indeed, action of Sebi is in the right direction and will bring much needed consistency in terms of disclosure of the impact of pandemic by the listed entities. However, the timing of the Sebi announcement could be an issue as many big listed entities such as Reliance, TCS, Infosys, HDFC Bank, Axis Bank and Marico have already published their financial results. Well, one would tend to think that action of Sebi is not adequate since guidelines are subjective and recommendatory. In a nutshell, we are witnessing unprecedented uncertain times and one has to evaluate all possible information diligently and apply his best judgement to arrive at any conclusion.

Milan Mody is Partner, N A Shah Associates and Chintan Ghelani is Manager, N A Shah Associates.

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