The Hindu Business Line : `Governance ratings becoming popular among investors'

PRIVATE equity investors, in their bid to identify the right prospects, are increasingly seeking feedback from leading credit rating agencies with regard to the corporate governance practices followed by individual companies.

Agencies such as Crisil have reported a rise in the number of queries received from private equity outfits with regard to corporate governance (CG) ratings assigned by them. These have been made to acquire a deeper insight into the operations of the companies in question, with the objective of forming investment decisions.

"We have had a number of queries from private equity investors in recent days. Our assessments will serve as important inputs in their evaluation process," said Ms Roopa Kudva, Chief Rating Officer, Crisil. She, however, did not wish to specify instances.

The two leading agencies, Crisil and ICRA, have both seen a number of companies accepting the CG ratings assigned to them. There are quite a few unaccepted ratings, the names of which cannot be disclosed by the agencies.

According to Mr P.K. Choudhury, Managing Director, ICRA, governance practices are quite significant for professional investors, especially the institutional kind.

As a recent study conducted by the agency indicated, investors cared about such practices because "they feel confident about the integrity of accounting numbers".

There are a few other reasons as well. It is felt that good CG ratings imply lower possibility of frauds, protection of minority shareholders' interests and superior management skills.

Rating agencies also feel that many investors are not averse to paying a premium for the better governed corporate entities. Over 95 per cent of the respondents to the ICRA review mentioned that they were willing to shell out more for such companies even though they did not quantify the amount of premium.

Another agency, CARE, believes that its `Corporate Governance and Value Creation' ratings service provides an independent opinion that combines CG practices and value creation measures adopted by companies.

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