Valuation of Nonlisted Companies in Emerging Markets

Rapid changes are taking place in the economies of these countries and they provide a wonderful ground for investors to reap huge benefits. When compared to the developed world, the return on investment in these economies is higher and faster, as the rate of industrialization and growth in niche sectors is rapid.
While we talk of investment, we have to distinguish between investment in listed companies and non-listed companies in these emerging economies. There is a difference in the way investments and returns are made in listed and non-listed companies. While listed companies are governed by stringent rules dictated by the respective governments, non-listed companies enjoy a certain degree of autonomy in their operations. There is a difference in the valuations of these non listed companies as compared to the listed companies. It is very important to critically examine the valuations of these non-listed companies in emerging markets, before a foreign or even a domestic investor puts in his capital.
In the International Experts Meeting on Corporate Governance of non Listed Companies, held in Istanbul, Turkey on 19-29 April, 2005, a large number of policy makers, business leaders and other experts deliberated on the issues of corporate governance of non listed companies, namely different ownerships, sourcing of capital, transparency requirements, professional management and the role of the policy makers in ensuring the above-mentioned factors. This meeting was organized by the OECD and had participants from 36 countries1.The group concluded that there was a need for better corporate governance, meeting compliances, increase in size and capital ploughed in, transparency and working towards shareholders’ benefit in non listed companies in the emerging markets to help the economy which, in many case was dependent on the success of these family-owned entities.
In another study conducted in Chile, it was found that in some case, there is a conflict of interests between controlling and minority stakeholders. Pyramids seem to be an effective way of separating cash from controlling rights. This is an effective way for economic groups to exercise control over productive assets and to establish internal capital mechanisms that can compensate for poorly developed formal markets. However, establishment of pyramids could be detrimental to the market value of companies and to the economy of the country as well2.
Research Process
After reviewing the available literature, it seems logical to go about the research process by undertaking a study of non- listed companies in emerging markets, the main examples being China, India, Russia, Brazil. This would represent almost the majority of the developing world.
A relative analysis of company ownership, cost of capital, cost of resources, market valuations, professional management, corporate governance and popularity on the local and international stock markets could be carried out. Two cases per country: one of a listed company and another of a non-listed company could be compared and the discussions and results arrived at. A study of each country’s policies in the area of listed and non-listed companies would also have to be undertaken, and the need for improvement/change in

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