IPO grading had been permitted by SEBI to enable investors to have an independent opinion from credible entities on the fundamental business strengths of the company.

Sarbajeet K. Sen

New Delhi, Feb. 18

SHAKING off their initial hesitation, several companies that are planning initial public offerings (IPOs) have begun approaching rating agencies to get their issues graded.

The first few IPOs carrying a grading symbol printed on the offer document could well be of companies belonging to the information technology and financial services sectors.

According to the rating agency ICRA Ltd, the first queries from companies wanting to get their IPOs graded have started trickling in. "We have received enquiries from some companies. We are currently talking to three or four entities from the information technology and financial services field," the Executive Director, ICRA Ltd, Mr Amul Gogna, told

Business Line

.

Mr Gogna, who is in charge of the putting in place ICRA's grading mechanism, said that it could take a couple of weeks more before the first public issue carrying the rating agency's grading symbol hits the market. "We should be able to issue our first grading within a month or two," he said.

The Securities and Exchange Board of India had in January permitted the grading of IPOs by select rating agencies, including ICRA, Crisil, Fitch Ratings India and CARE. However, there had been apprehension among companies proposing to come up with IPOs over the possible adverse impact on pricing in the event of a poor grade.

Mr Gogna feels that once the process picks up, companies would gradually realise the benefits of getting their issues graded, especially those that are confident of their fundamental strengths. "Sometimes you may not know that you are as good as you are. In such situations, getting a grading by an independent rating agency would come in handy," he said.

He pointed out that acquiring a high grading symbol could help makecompanies confident of commanding a better premium on their offer. "Our grading can help issuers benchmark themselves. Issuers who have underlying strength can project themselves better to their prospective investors."

IPO grading had been permitted by SEBI to enable investors to have an independent opinion from credible entities on the fundamental business strengths of the company. Though it is optional for companies to seek an opinion, it would be mandatory for them to mention the grading symbol on the offer document if they have opted to get themselves graded.

SEBI had clearly said that the grading exercise would restrict itself to assessing the fundamental business strength of the company (such as business prospects and financial position) and would not be an investment recommendation as such.

The grading would be on a five-point scale with five indicating strong fundamentals and one indicating weak fundamentals. The rating agency would have to affix its name before the grading symbol.

Related Stories:
Crisil, ICRA to offer IPO grading services Fitch to `wait and watch'
SEBI working on IPO rating

(This article was published in the Business Line print edition dated February 19, 2006)
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