Indian economy is strong and so are the Indian companies. These days the companies are coming with the IPO’s entering the stock markets every now and then. The credit rating of the company helps the company to gain investor confidence in the IPO process. Such ratings are given by credit rating agencies based on the due intelligence carried out through series assessment techniques.
UNDERSTANDING CREDIT RATING
Credit rating reflects an organization’s worthiness, by means of financial obligations. Credit rating weighs company insights into strengths and weaknesses. This helps organizations understand and manage their risks better. Credit rating holds special significance for a startup since a good rating does away with the need for an in-depth due-diligence on the part of the potential investors or financial institutions and provides the startup negotiating power to work out a better equity deal, or in case of debt, lower interest rates. A good credit score establishes your credibility and ability to pay back on time and hence helps in raising debt. Credit rating is done by Credit Rating Agencies (CRAs). Moody’s, Standard and Poor’s and Fitch IBCA are the top three agencies in the world. In India, there are several government-approved agencies providing ratings to individual borrowers. CRISIL (Credit Rating and Information Services of India Limited), CARE (Credit Analysis and Research Limited), ICRA (an associate of Moody’s) and Fitch Ratings are the leading registered Leading Government-approved CRAs in India.
Find more on these websites www.icra.in, www.careratings.com, www.fitchindia.com
TIME & COST INVOLVED
A CRA in India may take anywhere between a week and a month to finish the rating process. A CRA charges may vary from Rs 40,000 to Rs 15 lakh. The cost depends upon the size of the organization, depth of the study, time taken, effort required, etc. Rating is granted for a period of one financial year, during which the organization is kept under constant surveillance by the CRA.
LEGAL FRAME
CRAs are regulated by the SEBI (Credit Rating Agencies) Regulations, 1999 and the Credit Information Companies (Regulation) Act, 2005, which lay down certain guidelines in accordance with which CRA in India are allowed to register and function.
RATING PROCESS
There are two categories –
1. Issues: Issues can comprise any debt instruments (bonds, commercial papers, etc), funds, IPOs, or in fact, any money instruments.
2. Issuers are the organizations issuing the concerned instrument. The issuer can be a big corporate or an SME (Small and Medium Enterprise).
The rating is time based like short-term or long term as per needs and agreement between the company and the CRA. A company can get a rating even without any immediate public issue.
The rating is a result of the financial, non-financial, legal and risk evaluation of the company. For different industries, the rating process is different. For example, the rating process for a power company will be different from Textile Company.