3.6 Important Associates In Public Issue


  1. Credit Rating Agencies:

    They play an important role in grading the issue, helping the investors to decide whether to invest or not. It is intended that IPO fundamentals would be graded on a five point scale from grade 5 (indicating strong fundamentals) to grade 1 (indicating poor fundamentals). The grade would be read as: ‘Rating Agency Name’ IPO Grade 1.

    For example, CARE IPO Grade 1, CRISIL IPO Grade 1 etc. The assigned grade would be a one-time assessment done at the time of the IPO and meant to aid investors who are interested in investing in the IPO. The grade will not have any ongoing validity.

    Some of the credit rating agencies in India are:

    • Credit Rating Information Services of India Limited (CRISIL).
    • Investment Information and Credit Rating Agency of India (ICRA).
    • Credit Analysis & Research Limited (CARE).
    • Duff & Phelps Credit Rating India Private Ltd. (DCR India).
    • ONICRA Credit Rating Agency of India Ltd.
    • Ratings awarded by major credit rating agencies are:
    • AAA     :     Highest Safety
    • AA     :     High Safety
    • A     :     Adequate Safety
    • BBB     :     Moderate Safety
    • BB     :     Sub -moderate Safety
    • B     :     Inadequate Safety
    • C     :     Substantial Risk
    • D     :     Default
  2. Registrars:
    A registrar to an issue is a SEBI-registered entity, qualified to act as such, and who processes all the application forms and carries out the allotment process, as per the rules/prospectus. For example, Karvy and CAMS in India.
  3. Banks:
    Bankers play a key role in collecting the payments with the application on behalf of the company from the issue’s opening to closing dates.
  4. Depository Participants (DP):
    As the demat account (see reference) is mandatory for application of a public issue, depository participants (DPs) which are registered with depositories (NSDL or CDSL) play an active role in providing new demat accounts and crediting electronic shares to the respective demat account of the applicant, if allotted.
  5. Underwriters:
    They are not associated with all the public issues. The companies which suspect the success of their public issue appoint underwriters to assure the success of the issue. Underwriting, as per rule 2(g) of the Sebi Regulations, is defined to mean “an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them”. Here the risk component of the corporate in raising the money is mitigated by under writing institutions. Under writers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt capital). In case they are not able to find enough investors, they will have to hold some securities themselves. Underwriters make their income from the price difference between the price they pay the issuer and what they collect from investors or from broker-dealers who buy portions of the offering.
  6. Stock Exchanges:
    Once the shares are issued by the company to the respective applicants it is mandatory for the company to list its shares with a regional or national stock exchange which would provide marketability and liquidity for the shareholders.
    Fixed Price Public Offers And Book Built IPOs:

    A fixed price offer is an issue in which the price of the security offered is fixed by the issuer and applications have to be of the specified amount only. Here the price is already fixed. On the other hand, the BB IPO, or in other words, book built IPO is one where there is a discovery of the price through the price bidding mechanism. Here the investor can bid for a price within the specified range. Usually, a band (range) of the price is announced, and interested investors apply or bid for the security within this band i.e. the application can be for any price within this range.
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