Care Ratings gets Sebi exemption from IPO grading

The rating agency's IPO will hit the market next week

The Securities and Exchange Board of India (Sebi) has exempted rating agency Credit Analysis and Research (Care Ratings) from the grading process before its initial public offering (IPO), which will hit the market next week. The company had sought the regulator’s exemption from the mandatory procedure prior to the IPO as it would have resulted in a rival rating agency gaining access to its books and insider information.

“An IPO grading agency evaluates the issuer company’s business operations while assigning the IPO grading. This would imply sharing its business information with a competitor,” said DR Dogra, MD & CEO, Care Ratings.

 

Sebi regulations require companies to obtain a grading for its offering from at least one credit rating agency registered with it. IPO grading was made compulsory in May 2007 by Sebi to increase transparency and disclosures. Grading is aimed at helping investors assess the fundamentals of an IPO in relation to its peers.

An investment banker involved with the Care Ratings issue said that the rationale behind asking for an exemption was not to suppress any information from investors but the company didn't want rivals to know its business strategies.

Dogra also said that the company has made all the relevant disclosures pertaining to its business operations, financials and the risk factors in its offer document for investors to make informed investment decisions.

An email sent to Sebi seeking comments on this matter didn't elicit any response.

According to people in the know, Care had suggested that its issue be graded based on information already in the public domain, however, most agencies were unwilling to grade the issue with such an arrangement.

Before assigning a grade to any issue, a rating agency has looks at factors like competitive and financial position, management quality, corporate governance practices and risk and prospects of new projects. IPO grading, however, doesn't take into account the pricing of an issue.

At present, there are six Sebi registered credit rating agencies in the country. Care Ratings will be the third agency to list after Crisil, which listed in 1993 and ICRA, which listed in 2007. The IPO grading was not introduced when these two firms came out with their public offers.