Indian IPO Ratings System Under SEBI Scanner - Nov 06, 2008

Last year in April, the rating system or grading of Indian initial public offers was made mandatory. Now IPO ratings system is under SEBI scanner. A ccommittee onsisting of 16 members headed by HDFC chairman Deepak Parekh in Mumbai on 4th November discussed on the efficacy of the IPO ratings system. More than 5% of the committee members feel that the present IPO grading by credit rating agencies do not take the price of the issue into account.

According to some members, a higher grade may be misleading. Those plumping for IPO ratings say that such rating is needed as it helps investors benchmark IPOs before investing. According to SEBI rules, IPO grading, is aimed to provide the investor with an informed and objective opinion. But at the same time, irrespective of the grade obtained by the issuer, investors needs to make an independent decision regarding the price before subscribing the shares offered through the public issue.

At present, registered rating agencies, such as Crisil, CARE, Icra and Fitch are doing the ratings. Grades between 1 to 5 are allotted according to the company fundamentals. Further, issuing companies pay Rs 5- 15 lakh to acquire rating from at least one credit rating agency.