Why IPO Grading was introduced?
IPO grading has been introduced as an objective to make additional information available for the investors in order to supplement their assessment of fundamentals of the company offering equity issues through an IPO. SEBI had made it mandatory to grade all IPOs commencing from May 2007. Post this announcement many credit rating agencies such as ICRA, CARE and CRISIL registered with SEBI to provide IPO grading services. However, IPO grading was not well received by many. With effect from 4th February 2014, on the request of Investor Associations and Association of Investment Bankers of India (AIBI) and the mounting corporate steer, SEBI had come up with a new guideline that made IPO grading optional.
Factors considered for in grading an IPO:
Though the actual factors evaluated for grading may not be identical or limited to the following, given below are the factors that are most widely considered:
Grading details on IPO Documents:
If the issuers has opted for a grading their IPO, the Prospectus/Red Herring Prospectus, as the case may be, shall contain the grade received from the agencies. Along with this, description of the grades should be made available in issue advertisement or any other place where the issuer company is making advertisement for its issue
Industry Prospects Company Prospects
Benefits of grading an IPO:
IPO grading facilitates the investors with supplementary information for making well informed decision about the investments he/she would want to do.Since it is an independent evaluation of the fundamental strength of the issuer, an IPO grade offers the investors an unbiased view of the issuer’s position.Grading enables relative assessment of different companies operating in same industry.
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