IPO-bound cos warm up to agency grading
The coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies.
By Ashish Rukhaiyar & Shailesh Menon, TNN |
MUMBAI: The coming days will witness a high number of initial public offerings (IPOs) and, interestingly, there will be quite a few graded by rating agencies.
Last year, in the period between August and November, there were six IPOs that were graded by the rating agencies and since then, nearly 20 issues have hit the market and not a single one has opted for grading. However, companies are slowly warming to the concept of going in for IPO grading, according to officials at rating agencies.
���The rating agencies are working with the stock exchanges and there are quite a few issues in the pipeline. Although, the exact number of issues is not clearly known, it is expected to be less than 10. The issues are part of a pilot project of the stock exchanges that are also bearing the cost of the grading process.
Last year saw six IPOs being graded, followed by a brief lull, but things are looking up once again,��� said an official at a leading rating agency. According to sources, the cost of grading each issue is approximately Rs 5 lakh and it takes around 3-4 weeks for one issue to be graded.
A senior official at CARE testified to change in the attitude of companies towards IPO grading. The agency is said to have received quite a few enquiries in this regard. ���Issuers are approaching us for grading their public issues on compulsion from the exchanges. As the market evolves, we will see more companies opting for voluntary grading of their issues���, said L Shivakumar, head - Mumbai, Icra.
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On the other hand, according to merchant bankers, graded public issues, preferably with a grading of more than two in a scale of five, help them market the IPO better. ���With institutional buyers taking more interest in small-size issues, a satisfactorily graded one can easily attract chunk investors,��� said a merchant banker on conditions of anonymity. He further added that the grades, however, should not be assigned by plainly comparing the issuer with any other ���established sample��� (usually a listed company with a huge market presence). ���Rating agencies should only focus on the company. It should be able to take a call without relatively assessing the issue to an inconsistent sample,��� the merchant banker said.
Interestingly, among the six IPOs that were graded last year, only one ��� Shree Ashtavinayak Cine Vision ���has actually got listed on the bourses and has followed it up with an impressive performance, too. The issue price was fixed at Rs 160 and the stock got listed on January 10. On Friday, February 2, the stock closed at Rs 311.35 ��� a gain of nearly 95%. The issue was given a grading of 2/5, which denotes ���below average fundamentals���.
People involved in the grading process opine that since the grading is awarded on the basis of fundamentals, business prospects, management quality and corporate governance, among others, the stock performance cannot be directly linked to the grades. The sentiment prevailing in the secondary markets also play a crucial role, they added.
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