Sanjeet Singh
07/BBS/7003
Credit Rating Process
1. Ratings process begins with a credit rating request from the issuer or its representative. When
unsolicited ratings are issued, the same is covered by Unsolicited Ratings Policy.
2. CRA should not to promise, assure or guarantee – either implicitly or explicitly a particular
rating outcome to the client.
3. CRA should explain the entity the scope and use of the ratings, as well as the broad
assessment followed. This part is normally carried out through presentations, brochures and
other materials as disclosed in the website to minimize misrepresentation. The policies related to
the use of ratings, conditions for withdrawal, and possible circumstances for rating actions are
clearly communicated.
4. The issuer signs the detailed rating agreement and provides initial information as well as
rating fees.
5. Confidentiality of information is of paramount importance to any CRA, and relevant measures
and processes are put in place in the organizational structure to maintain confidentiality of such
information at all points in time. All employees who may have access to such confidential
information must, without exception, acknowledge compliance with the code of confidentiality in
writing. Such an affirmation by way of self-certification are obtained from the employees on a
periodic basis as a legally binding undertaking, and enforced even after termination of
employment or association.
6. Credit rating criteria enable analysts to analyze and interpret information appropriately. We
refine criteria and benchmarks proactively, taking into account changes in the market
environment. Robust criteria assist in accurate assessment of credit risk for an entity. Ratings
are subjective credit opinions based on various qualitative and quantitative factors. The
robustness of ratings is preserved through consistent application of updated rating criteria.
Besides developing criteria for in-house use, we publish a broad criteria framework in our
website. Consistent application of criteria helps us to compare ratings.
7. Rating process ordinarily takes 2-3 weeks. The rating mandate, structure of the instrument as
well any information received is forwarded to the rating team of analysts. CRA may, however,
put on additional resources and compress the time frame provided the external rating committee
could meet in shorter time.
Sanjeet Singh
07/BBS/7003
8. The Analyst team studies the information given by the client and does cross validation from
both the public and private sources.
9. The analysts also study the general information on the economy as well as industry both from
the international and domestic perspective. For instance the effect of global financial crisis,
erratic foreign exchange market could be relevant for the Export Import companies.
10. The team of analysts have meeting with the management. The team typically discusses the
management views on their competitive strategy, marketing plans, financial projections; both
short term & long term outlook, corporate governance policy as well as hedging policies, etc…
11. The Internal Rating Committee looks at the information presented by the analysts, and
arrives at the reasonable rating for the instrument/issuer. The Internal rating committee normally
witnesses brain storming session among the team members and arrive at their final
recommendations.
12. The External Committee consists of external experts, selected Board of Directors including
the former chairman of a bank as the Chairman of the Committee and Academic experts. The
external committee takes the final rating decision, including outlook.
13. On completion of the External Committee meeting, the decision is communicated to an
issuer. The detailed printout of rationale is also sent to the issuer. The analysts answer any
queries the issuer may have in terms of process and structure used in the rationale.
14. In the event that the issuer disagrees with the initial rating, and has additional information
that it believes can make a material difference to its rating, it is highly desirable that the issuer
have recourse to an appeal process. Upon receiving valid information, the rating committee will
discuss the merits of the case and may or may not decide to modify the rating. The rating
committee may decide to include one additional member who did not participate in the original
rating to bring in a fresh perspective.
15. If the rating is accepted a suitable press release along with a rationale is release to the
public domain.
16. CRA assigns the press release to all major financial and other news papers using a private
wire network. The detailed rationale is also released along with the press release.
Sanjeet Singh
07/BBS/7003
Book Building Process
Book building is basically the process of generating a book of investor demand for the shares
during an IPO for efficient price discovery.
The Process:
• The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
• The Issuer specifies the number of securities to be issued and the price band for the
bids.
• The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.
• The syndicate members input the orders into an 'electronic book'. This process is called
'bidding' and is similar to open auction.
• The book normally remains open for a period of 5 days.
• Bids have to be entered within the specified price band.
• Bids can be revised by the bidders before the book closes.
• On the close of the book building period, the book runners evaluate the bids on the basis
of the demand at various price levels.
• The book runners and the Issuer decide the final price at which the securities shall be
issued.
• Generally, the number of shares are fixed, the issue size gets frozen based on the final
price per share.
• Allocation of securities is made to the successful bidders. The rest get refund orders.
