Credit Rating and Information Services of India Ltd.

(CRISIL) a global analytical company providing ratings, research, and risk and policy advisory services. CRISIL's majority shareholder is Standard and Poor's. Standard & Poor's, a part of The McGraw-Hill Companies, is the world's foremost provider of credit ratings. CRISIL is the largest credit rating agency in India. CRISIL pioneered ratings in India more than 20 years ago, and is today the undisputed business leader, with the largest number of rated entities and rating products: CRISIL's rating experience covers more than 41,738 entities, including 20,000 small and medium enterprises (SMEs). As on June 30, 2011, we had more than 13,787 ratings (including over 6,800 SMEs) outstanding. CRISIL's Global Analytical Centre (GAC) supports the Global Resource Management initiative of Standard & Poor's (S&P). Under this initiative, GAC provides resources to S&P to improve workflow efficiencies, handle end-to-end analytical jobs, process information, and execute complex modelling assignments. CRISIL Research is India's largest independent research house. Through constant innovation, and comprehensive research offerings, covering the economy, industry and companies, CRISIL Research meets the requirements of more than 750 Indian and global clients. Apart from off-the-shelf research reports, CRISIL also provides incisive, customised research that allows clients to take informed business and investment decisions. CRISIL offers products and services covering both equity and debt markets thereby furthering CRISIL's objective to make markets function better. 1. CRISIL Equities 2. Mutual Fund Research 3. Indices - IISL India Index Services and Products Ltd (IISL), a joint venture between NSE and CRISIL Ltd., was set up in May 1998 to provide a variety of indices and index related services and products for the Indian capital markets. It has a consulting and licensing agreement with Standard and Poor's (S&P), the world's leading provider of investible equity indices, for co-branding equity indices. CRISIL offers domestic and international customers (CRISIL Global Research and Analytics consisting of Irevna and Pipal Research caters to international clients) with independent information, opinions and solutions related to credit ratings and risk assessment; energy, infrastructure and corporate advisory; research on India's economy, industries and companies; global equity research; fund services; and risk management. CRISIL Infrastructure Advisory* provides practical and innovative solutions to governments, donor funded agencies and leading organizations in over 20 emerging economies across the world to help improve infrastructure service delivery transform performance of public institutions and sector efficiency design and strengthen reform programs to catalyze private sector participation

In previous article we discussed about credit rating , different kinds of rating, users of credit rating and rating process for different concern. Lets discuss more about credit rating and the different agencies and their ratings. Below is the brief discussion about CRISIL ( the rating agency). CRISIL : Credit rating information services of India Ltd. According to CRISIL, “ Credit Rating is an unbiased and independent opinion as to issuer’s capacity to meet its financial obligations. Its doesn't constitute a recommendation to buy/sell or hold a particular security”. CRISIL , the first credit rating agency was started on January 1, 1988. It was started jointly by ICICI bank and UTI bank with an equity capital of Rs. 4 crores. The main objective of CRISIL is to rate debt obligation of Indian Companies. CRISIL commences rating as per the request of the companies. Crisil provides the rating as per the investment i.e. (a) Debenture

(iii) Speculative Grades: BB : Inadequate Safety – This rating shows the comparative uncertainties faced by the issuer. (a) CRISIL Debenture Rating Symbols : (i) High Investment Grades : AAA(Triple A) : Highest Safety . D : Default – This rating shows that such debentures are extremely speculative and returns from them can be realized only on reorganization or liquidation.on timely payment of interest and principal AA (double A) : High Safety (This symbol shows the minor variation from triple A) (ii) Investment Grades : A : Adequate safety. BBB : Moderate Safety – This rating shows the variations caused by changing circumstances weakening the capacity. C : Substantial Risk – This rating shows unfavorable circumstances to develop as it can be default. (b) CRISIL Fixed Deposit Ratings Symbols: FAAA ( F triple A) : Highest Safety FAA (F double A) : High Safety .(b) Fixed deposit (c) Short term investment (d) Structured obligations (e) Real estate developers projects (f) Foreign Structure Obligations (g) Bond funds (h) Real estate developers (i) Governance and value creation (j) Health-care institutions (k) Credit assessments (l) Collective investment scheme Following is the brief of ratings for above said investments. B : High Risk – This shows adverse business or economic conditions affecting the issuer. This rating shows the adverse impact arising out of changed circumstances.

This rating shows the degree of safety regarding timely payment on the instrument is very strong. This rating shows the highest degree of certainty regarding timely payment of financial obligations on the instrument. B(SO) : High Risk. This rating shows adversity affected by short term adversity or less favorable conditions. However. P – 2 : Strong P – 3 : Adequate P – 4 : Minimal. This ratings shows the less susceptible to default than instrument s. FD : Default – this shows that the issuer is either in default or is expected to be default upon maturity. FB : Inadequate Safety – This shows the inadequacy capacity to make the timely interest and principal payments. BBB(SO) : Moderate Safety (3) Speculative Grades : BB (SO) : Inadequate Safety. This rating shows changes in circumstances can adversely affect such instrument more than those in higher rated categories. This rating indicates the certainty of the payment of instrument. (1) High Investment Grades: AAA (SO) : Highest Safety .1 :Very Strong . An adverse business or economic C (SO) : Substantial Risk. FC : High Risk – Such rating shows the adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. (c) CRISIL’s Rating for Short – term Instrument : P . D (SO): Default (e) CRISIL’s Rating Symbols for Real Estate Devlopers ‘ Project : . structured obligations rating are defined differently. AA (SO) : High Safety (2) Investment Grades : A (SO) : Adequate Safety. P – 5 : Default : This rating indicates that the instrument is expected to be in default on maturity or is in default. This rating shows high risk as well as greater susceptible to default.FA : Adequate Safety – This rating shows the changes in circumstances can affect the issues more than those in higher rated categories. (d) CRISIL’s Rating for Structured Obligations: Structured Obligations are using the same rating as debentures.

The following are the ratings: · AAAf : Very Strong · Aaf : Strong · Af : Adequate · BBBf : Moderate · BBf : Inadequate · Cf : Defaults (h) CRISIL’s Rating for Real Estate Devlopers: CRISIL rates real estate projects on the basis of their past achievement records . High Ability : PA – 2 Adequate Ability : PA – 3 Inadequate Ability : PA – 4 .Highest Ability : PA – 1 :This rating shows the highest ability of developer to specify and build to agreed quality levels and transfer clear title within stipulated time schedules. Financial Structured Obligations rating shows the same scale (AAA to D) as CRISIL rates for long term instrument. (g) CRISIL’s Rating for Bond Funds : CRISIL rates the bonds and shows the protection capacity in terms of profit or loss o credits. . This records indicates the future expectation. The following are the ratings: · DA1 : Excellent : This shows the past record of the real estate project is excellent · DA2 : Very Good · DA3 : Good · DA4 : Unsatisfactory · DA5 : Poor (i) CRISIL Rating for Corporate Governance and Value Creation : This rating was introduced because of few companies’ failure in USA due to governance failure. As a result for investor protection this ratings scale is introduced. This ratings analysis the credit worthiness of corporate governess. The rating shows the certainty regarding timely payment of financial obligation on the instrument. this rating shows theinabilty of completion of project. (f) CRISIL ‘s Rating of Foreign Structured Obligations : CRISIL ratings of Foreign Structured Obligations(fso) are based on the entity based outside of the country.

The following are the ratings as follows: · 1 : Very Strong Capacity · 2 . whether the borrower can pay the principal and interest timely or not. 13 : Poor Capacity · 14 : Default (l) CRISIL Ratings for Collective Investment Scheme : CRISIL rates investment schemes to assure the investor that whether they are going to get there return of investment or not.The following are the ratings for corporate governance : · Level 1: Highest · Level 2 : High · Level 3 : Strong · Level 4 : Moderate · Level 5 : Adequate · Level 6 : inadequate · Level 7 : Poor · Level 8 : Lowest (j) CRISIL Rating for Health Care Institution : CRISIL rates the health care institutions in the terms of delivering Patient care. The following are the ratings : · Grade A : Very good · Grade B : Good · Grade C : An average · Grade D : Poor (k) CRISIL Ratings for Credit Assessments : CRISIL rates different type of Credit Assessment . 7 : Adequate Capacity · 8. The followings are the ratings as follows : . 10 : Inadequate Capacity · 11.e. equipments. facilities. 4 : Strong Capacity · 5 . manpower and also the service quality. 9. 12. 3.6. In addition to this some more components are considered to rate i.

The underwriter then approaches investors with offers to sell these shares. The company and the investment bank will first meet to negotiate the deal. This document contains information about the offering as well as company info such as financial statements. For example. the underwriter sells securities for the company but doesn't guarantee the amount raised. Items usually discussed include the amount of money a company will raise. in a firm commitment. in which they investigate and make sure all material information has been disclosed. The deal can be structured in a variety of ways. Merrill Lynch. One underwriter leads the syndicate and the others sell a part of the issue. where the money is to be used and insider holdings. however. In a best efforts agreement. Instead. which does the underwriting. The sale (allocation and pricing) of shares in an IPO may take several forms. they form a syndicate of underwriters. IPOs generally involve one or more investment banks known as "underwriters". the first thing it does is hire an investment bank. Once all sides agree to a deal. Common methods include:     Best efforts contract Firm commitment contract All-or-none contract Bought deal . Lehman Brothers and Morgan Stanley. The SEBI then requires a cooling off period. the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). the type of securities to be issued and all the details in the underwriting agreement. a date (the effective date) is set when the stock will be offered to the public. The company offering its shares. The biggest underwriters are Goldman Sachs. any legal problems. enters a contract with a lead underwriter to sell its shares to the public. the investment bank puts together an offer document to be filed with the SEBI. called the "issuer". Credit Suisse First Boston. investment banks are hesitant to shoulder all the risk of an offering. Once the SEBI approves the offering. You can think of underwriters as middlemen between companies and the investing public. Also.· Grade l : High Certainty · Grade ll : Adequate Certainty · Grade lll : Moderate Certainty · Grade lV : Inadequate Certainty · Grade V : High Uncertainty What is the Procedure for Issuing an IPO? When a company wants to go public. management background.

Because of the wide array of legal requirements and because it is an expensive process. 19. i.e. Upon selling the shares. Usually. in addition to separate syndicates or selling groups for US/Canada and for Asia. A licensed securities salesperson ( Registered Representative in the USA and Canada ) selling shares of a public offering to his clients is paid a commission from their dealer rather than their client. In the US sales can only be made through a final prospectus cleared by the Securities and Exchange Commission. Dutch auction A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). may be represented by the main selling syndicate in its domestic market. 5. Public offerings are sold to both institutional investors and retail clients of underwriters. Retained earnings: The company may not distribute the whole of its profits among its shareholders. Some of these institutions are: . the lead underwriter in the main selling group is also the lead bank in the other selling groups. take the highest commissions—up to 8% in some cases. 4. IPOs typically involve one or more law firms with major practices in securities law. In cases where the salesperson is the client's advisor it is notable that the financial incentives of the advisor and client are not aligned. It may retain a part of the profits and utilize it as capital.U. an issuer based in the E. Loan from financial institutions: There are many specialised financial institutions established by the Central and State governments which give long term loans at reasonable rate of interest. the underwriters selling the largest proportions of the IPO. The holders of shares are the owners of the business. Europe. such as the Magic Circle firms of London and the white shoe firms of New York City. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. 6.4 Sources of long term finance The main sources of long term finance are as follows: 1. Shares: These are issued to the general public. the underwriters keep a commission based on a percentage of the value of the shares sold (called the gross spread). Usually. Investment dealers will often initiate research coverage on companies so their Corporate Finance departments and retail divisions can attract and market new issues. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the greenshoe or overallotment option. Public Deposits : General public also like to deposit their savings with a popular and well established company which can pay interest periodically and pay-back the deposit when due. 2. Term loans from banks: Many industrial development banks. 3. cooperative banks and commercial banks grant medium term loans for a period of three to five years. For example. These may be of two types: (i) Equity and (ii) Preference. the lead underwriters. The holders of debentures are the creditors of the company. Debentures: These are also issued to the general public.

Since VCs employ equity financing to fund a company. the VC is not going to get his or her money back. The following paragraphs describe the four most important aspects of their decision making. before investing in a company. A venture capitalist(VC) is a person who provides equity financing to companies with high growth potential. VCs generate profit by buying a company’s common or preferred stock. Industrial Credit and Investment Corporation of India (ICICI). General partners on the other hand receive income on all deals. the business plan. the market dynamics. provide equity financing to companies that have high growth potential and generate profits from their investments. etc. Entrepreneurs in Residence are domain-specific experts who perform due diligence on potential deals. three will generate low to average returns. Each venture capital firm manages a venture fund. which is often comprised of a large pool of money-anywhere from $25 million to $1 billion--that the firm invests in growth companies. VCs manage the risk by investing in multiple companies that have high growth. if the company fails. Limited partners are the individuals who invest in the venture fund.Industrial Finance Corporation of India ( IFCI). he or she assumes that five of those companies will fail. the value of the VCs’ stock becomes zero. In general. VCs rigorously research business ideas before they invest in one. the risk of loss is transferred from the entrepreneur to the VC. helping that company grow and liquidating their own stock once the company reaches a certain size and market value. How do VCs generate money? The primary objective of a venture capitalist is to manage his/her venture fund. venture partners and entrepreneurs-in-residence apart from associates and office staff. Although equity finance appears intimidating from an investment point of view. General partners collaboratively manage the firm’s venture fund. Most VC firms have different kinds of executives: general partners. These sources of long term finance will be discussed in the next lesson. A venture capital fund consisting of third-party investments can finance enterprises that are too risky for debt financing. if a VC creates a venture fund and invests in ten companies. General partners are the primary investment professionals in a firm. A typical venture capitalist invests money in a company by buying equity. limited partners. Industrial Development Bank of India (IDBI). How do VCs select companies to invest in? Given the high risk. It is virtually impossible to understand the dynamics of every company that needs . The money that a venture capitalist invests in a company is called venture capital. Typically. Unit Trust of India ( UTI ). Each VC firm invests in several companies and this group of companies is called the firm’s portfolio companies or portfolio. If the company fails. The logic here is that losses from any failed companies will be offset by the high Return on Investment (ROI) from the successful portfolio companies. An entrepreneur need not return the invested money because VCs own stock and become the entrepreneur’s partners. thereby creating a portfolio. Venture capital firms are often limited partnerships that comprise a few venture capitalists. State Finance Corporations etc. These individuals are temporarily engaged by VC firms for a short period. The VC’s equity in the successful companies generates such high returns that the losses are offset and the entire venture fund increases in value. thereby becoming its shareholder. Given this situation. and two will be successful. Companies that target different markets and are at different stages require funding for different reasons. VCs should assess the idea. Venture partners bring in deals and receive income on deals they mark. they are expected to conceptualize startup ideas or move on to a CEO or CTO role at a portfolio company.

but also help companies succeed. market specific intelligence. VCs are also human beings with their own share of mistakes. Different VCs focus on companies at different stages. Top-tier VCs prefer to retain the managing control of a startup. Sometimes. Of course. each VC focuses on a type of company and specializes in that particular domain. on the other hand. VC firms are often considered to be in different levels or tiers. top-tier funds are small or second-tier funds have experienced partners. although resource limitations can make this difficult for them It is important to know the dynamics involved in dealing with VCs at different rounds. There are horror stories all over the internet. 2nd-tier firms. Top-tier venture firms are established firms that generally manage larger venture funds with more money being managed and employ a higher number of experienced VCs who are specialists in their focus areas. Dealing with Top-tier VCs often results in spending a large amount of time and money negotiating terms with lawyers. but the above generalization usually fits. they prefer to co-invest in companies along with other Tier-1 VC firms  They are more likely to nurture a deal that they feel has promise. They want to drive to their portfolio company and attend monthly board meetings. which might be difficult if the first round of capital was raised from smaller 2nd-tier investors. smaller initial deals  Move faster than top firms  At times. Therefore. where the risk is high.investment. Actions that indicate Top-tier firms:  Large initial deals ($5-$20 Million range)  Many deals per month (2 to 5) since they have more partners and more money  A high percentage of their investments are in later rounds  They frequently do merger & acquisition type investments along with pure venture deals Actions that indicate 2nd-tier firms:  Highly-leveraged. while others focus only on biotechnology or nanotechnology. Some VCs make irrational decisions and do not treat portfolio companies fairly. For example. VCs not only invest in companies. A VC is successful only if his or her portfolio companies succeed. In addition. some focus only on expansion-stage companies and others focus only on latestage companies. there are other VCs that focus on private equity and leveraged buyouts. Therefore. VCs prefer to invest in companies that are within driving distance. Some VCs focus on early-stage companies. . certain VCs focus only on wireless communications. Therefore. Finally. etc. it is important for an entrepreneur to research the right set of VCs. Some become greedy and deprive the founders and employees of returns. entrepreneurs should research the backgrounds of the venture firms they deal with. They advise the entrepreneurs and assist with customer contacts. The VC firm’s partners decide whether it is a tier-1 or tier-2 firm. Startups that raise their first round of capital from 2nd-tier VCs often have trouble finding top-tier VCs in later rounds. move very quickly to close the deal at hand.

during the period for which the book for the offer is open. between the floor price and the cap price. which are within the price band specified by the issuer. In these case the greenshoe option is triggered. It is a mechanism where. the book runner evaluates the collected bids on the basis of certain evaluation criteria and sets the final issue price. The process is directed towards both the institutional as well as the retail investors. If demand is high enough. Book building is essentially a process used by companies raising capital through public offerings—both initial public offers (IPOs) or follow-on public offers (FPOs) to aid price and demand discovery. The issue price is determined after the bid closure based on the demand generated in the process. The final issue price is not determined until the end of the process when the book has closed. . The process aims at tapping both wholesale and retail investors. Bids can be revised by the bidder before the book closes.Process book building During the fixed period of time for which the subscription is open. the book can be oversubscribed. After the close of the book building period. the bids are collected from investors at various prices. the bookrunner collects bids from investors at various prices.

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