Sebi fines RIL R13 cr on DEPS disclosure issue

The Securities and Exchange Board of India (Sebi) has slapped a penalty of Rs 130000000 on Reliance Industries Limited (RIL) on the issue of correct disclosure of diluted earning per share (DEPS) — a key earnings ratio — for six quarters after a warrant issue. The penalty includes a fine of Rs 10000000 for violation of Listing Agreement and another Rs 120000000 for violation of the Securities Contracts (Regulation) Act. Sebi said as per the calculation, the difference between the basic EPS and the DEPS is around 8% negative in each quarters (except for the quarter ended September 2007). RIL was required to disclose the difference separately in equal prominence in its quarterly financial statements, it said. “The issue relates to the method of calculation of diluted EPS under the Accounting Standards. The issue is not of non-disclosure,” RIL said in a statement. “The method adopted by RIL for calculation of DEPS is incorrect since it has considered the fair value as per pricing formula of Sebi DIP Guidelines / ICDR which is only used for arriving the exercise price — Rs 1402 — instead of adopting the methods as per the provisions of AS 20,” Sebi said. “The company in its arguments and written submission has brought out all the relevant clauses of the Accounting Standards to substantiate why basic EPS and diluted EPS were same in all the quarters. We are now studying the order as to the interpretation SEBI has taken and would take appropriate action based on legal advice,” RIL said. “EPS (basic or diluted) is a vital factor or one of the fundamental tools for the investors while arriving at decision to continue or invest in the shares of a particular company. EPS is considered as single-most important vehicle in determining a share’s price. It is key driver of share price and used as a barometer to gauge a company’s profitability per unit of shareholder ownership,” the order signed by adjudicating officer D Ravi Kumar said. “The company has millions of shareholders and the prospective investors who were also deprived of the correct disclosures in relation to DEPS in the respective quarterly financial results as per AS 20,” Sebi said. The order follows a Sebi probe in an over 7-year-old case involving alleged irregularities in issuance of 120000000 warrants by RIL to its promoters entitling its holders to subscribe to equivalent number of equity shares of RIL.