Date:20/03/2006 URL: http://www.thehindubusinessline.com/2006/03/20/stories/2006032001950100.htm

Back SEBI's rating plan fails to lure IPO cos

Ambarish Mukherjee

Of more than 40 IPOs likely to hit the market, only 4 cos have taken the test exercise

Score-card
This is the first such effort anywhere in the world and SEBI kept it optional as a test exercise.
Crisil, ICRA, Fitch Ratings and CARE received only a handful of enquiries.

New Delhi , March 19

Despite more than 40 IPOs expected to hit the market in the first half of 2006-07, only four companies have approached the agencies approved by the Securities and Exchange Board of India (SEBI) for rating of their issues.

Incidentally, they too have not accepted the ratings awarded to them because these do not match up to their expectations, according to rating agency officials. This is the first such effort anywhere in the world and SEBI kept it optional as a test exercise.

The four agencies approved by SEBI are Crisil, Fitch Ratings, ICRA and CARE.

They have received only a handful of enquiries from the companies till date though there had been a large number of enquiries from merchant bankers seeking to know various details of the rating exercise and word is spreading through them, a rating agency official said.

According to a senior official in one of the approved rating agencies, "recently one construction company gave us the mandate for rating their forthcoming IPO. We did the necessary due diligence as per SEBI specifications that cover both internal and external aspects."

"But the company did not find our rating up to their expectations and has not approved it. And now it would be entering the market soon without using our rating," he said.

Among external factors the key one is the industry and economic/business environment for the issuer, the official said.

The internal factors include competence and effectiveness of the management, profile of promoters, marketing strategies, size and growth of revenues, competitive edge, technology, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedging of risks.

According to Mr Prithvi Haldea, Managing Director of Prime Database, that maintains the largest database of the IPO market, there are no incentives for the companies to rate their IPOs.

"First, there are no rating of IPOs anywhere in the world and thus there are no models. If a company accepts a particular rating, the concerned agency would have to report it to the SEBI and stock exchanges within the same month, which makes it public information. In such a case, a good company will not go for rating fearing that if it gets a bad rating its issue may suffer despite strong fundamentals. Similarly, a bad company too would not go for rating fearing that its cover-ups might get exposed with a poor rating," Mr Haldea said.