Agencies yet to fix limit on IPO grading fees

Credit rating agencies are yet to finalise the upper limit on the fees to be charged for grading the initial public offerings (IPOs). From this month, the grading of IPOs has became mandatory for all new IPO filings.

The minimum charge for grading an IPO is set at 0.1 per cent of the issue size. But rating agencies feel that there needs to be a cap on the maximum fees to be charged for grading, considering that this would result in a big outflow for companies launching mega issues.

Rating agencies ICRA, Crisil and Care undertake IPO grading. An ICRA official said, "We would be charging 0.1 per cent of the issue size and our minimum fee would be around 1.5 lakh. "

The upper ceiling would be somewhere between Rs 70-75 lakh. Howhere, the rates have not been finalised as yet. They would be more or less similar to the fee charged for debt rating."

A Crisil official said, "The 0.1 per cent is basically for the smaller issues, but as of now no fixed percentage has been decided for the large issues. It would differ from case to case. Our minimum ceiling would be Rs 1 lakh per issue. However the maximum limit has not yet been finalised. The fee structure will be similar to the debt rating because the elements of the process are the same."

The companies planning to go for an IPO have started approaching the rating agencies. An ICRA official said that some have already approached them for grading.

"We have received a few mandates and the work has already started. Some companies and merchant bankers have approached us and we have also approached some of the companies for grading the IPOs." said a Crisil official.

If a company dislikes the grading it has received from a rating agency, it can approach another agency, But the rules require the company to disclose all the gradings that they have received previously.

"The company will have to disclose all the grades it obtained in the prospectus and other public communications relating to the IPO. All the expenses relating to the grading will be incurred by the issuing company." the Sebi circular issued early this week said.

The grade assigned to an individual issue will represent the relative assessment of the company's fundamentals by the rating agency and would not be an investment recommendation.