Nearly 7
years after introducing ratings of initial public offerings (IPO), the
Securities and Exchange Board of India (SEBI) might make the concept voluntary.
“There is a
unanimous view that IPO grading should not be compulsory. We will consider
that,” SEBI Chairman Mr. U. K Sinha said at a conference organised by the
Association of Investment Bankers of India. He added the board would make a
formal announcement on the matter in a week.
SEDBI had
made it mandatory for companies to secure an IPO grade from at least one credit
rating agency for all offer documents filed on or after May 1, 2007.
“The IPO
grading process is expected to take into account the prospects of the sector in
which the company operates, the competitive strengths of the company that would
allow it to address the risks inherent in the business(es) and capitalise on
the opportunities available, as well as the company’s financial position,” said
to a SEBI note.
IPOs are
graded on a 5 point scale, with grade 1 being the lowest. The grade does not
take into account the valuations or the price at which the shares are offered.
‘Mandatory IPO grading: Does it help pricing efficiency’, a recent study by
Indian Institute of Management-Ahmedabad’s Joshy Jacoby and Sobhesh Kumar
Agarwalla, said certification did not result in more efficient pricing of IPOs.
“There is no evidence to support IPO pricing
improvement due to the introduction of IPO grading. This is contrary to the
evidence reported by some earlier studies. This suggests the failure of grading
as an IPO certification,” said the report, dated December 2012.
Currently,
IPO grading is voluntary for companies listing on SME platforms. Scrapping of
IPO grading would not impact rating agencies, as its share in their revenue is
very small.
Separately,
SEBI is planning to expand the list of companies that can raise funds by filing
a shelf prospectus (A type of offer where securities can be sold without a
separate prospectus for each set). “We want to expand the eligibility of
companies that can issue shelf prospectus,” Mr. Sinha said.
