Procedure for IPO Grading :

Credit Rating agencies (CRAs) registered with SEBI will carry out IPO grading.

SEBI does not play any role in the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of that agency.

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 read as: “Rating Agency name” IPO Grade 1 viz. 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.

The company needs to first contact one of the grading agencies and mandate it for the grading exercise. The agency would then follow the process outlined below.

– Seek information required for the grading from the company.
– On receipt of required information, have discussions with the company’s management and visit the
company’s operating locations, if required.
– Prepare an analytical assessment report.
– Present the analysis to a committee comprising senior executives of the concerned grading agency. This          committee would discuss all relevant issues and assign a grade.
– Communicate the grade to the company along with an assessment report outlining the rationale for the grade assigned.

Though this process will ideally require 2-3 weeks for completion, it may be a good idea for companies to initiate the grading process about 6-8 weeks before the targeted IPO date to provide sufficient time for any contingencies.