A company’s first attempt of listing at an exchange is preceded by an initial public offering (IPO). Under an IPO, a company issues a certain percentage of shares to the public. But, a public issue proposal has to be approved by the market watchdog Sebi. Subsequent attempts to issue shares to the public can be made through follow-on public offers.
Grading of IPOs was earlier voluntary and not many companies had been opting for it.
A year ago, Sebi made grading of all IPOs mandatory. In effect, all the companies that file their draft prospectus April 30, 2007, onward, have to rope in rating agencies to grade the IPO. But, the grading has to be done only after Sebi nod. A company can get an IPO graded by one or more scientific rating agencies such as Icra, Crisil, Fitch and CARE. The grades obtained by the company for its IPO have to be disclosed in prospectus, abridged prospectus, issue advertisements and all other places where the issuer is advertising for the IPO.
Before making grading compulsory, BSE and NSE had conducted a pilot study asking rating agencies to grade a few IPOs. But then, the expenses for the grading were sourced from the investor protection fund, whereas now, companies planning to raise money have to bear the entire expenses of grading.
Rating agencies have proposed to grade an IPO on the basis of the fundamentals of the company. This would be done on a five point scale, wherein a Grade 5 indicates strong fundamentals and Grade 1 indicating poor fundamentals. The grade would have the rating agency name as a prefix. The rating agencies have been maintaining that they do not comment on the price band of an IPO, thus making the entire exercise, that of telling the retail investor about the IPO, futile.
Grading of IPOs was earlier voluntary and not many companies had been opting for it.
A year ago, Sebi made grading of all IPOs mandatory. In effect, all the companies that file their draft prospectus April 30, 2007, onward, have to rope in rating agencies to grade the IPO. But, the grading has to be done only after Sebi nod. A company can get an IPO graded by one or more scientific rating agencies such as Icra, Crisil, Fitch and CARE. The grades obtained by the company for its IPO have to be disclosed in prospectus, abridged prospectus, issue advertisements and all other places where the issuer is advertising for the IPO.
Before making grading compulsory, BSE and NSE had conducted a pilot study asking rating agencies to grade a few IPOs. But then, the expenses for the grading were sourced from the investor protection fund, whereas now, companies planning to raise money have to bear the entire expenses of grading.
Rating agencies have proposed to grade an IPO on the basis of the fundamentals of the company. This would be done on a five point scale, wherein a Grade 5 indicates strong fundamentals and Grade 1 indicating poor fundamentals. The grade would have the rating agency name as a prefix. The rating agencies have been maintaining that they do not comment on the price band of an IPO, thus making the entire exercise, that of telling the retail investor about the IPO, futile.
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