JM Morgan Stanley chief Nimesh Kampani (left) and Crisil MD R. Ravimohan (extreme right) at a Ficci seminar in Calcutta on Wednesday. A Telegraph picture

Calcutta, Aug. 18: Crisil plans to put in place a system that will provide information on initial public offerings (IPOs) to help investors park their funds wisely.

The rating agency is currently developing the Crisil Public Issue Report to assess IPOs.

Earlier, the Securities and Exchange Board of India (Sebi) had expressed the need for a mandatory rating of IPOs — a service not available on any bourse in the world.

Managing director and chief executive officer R. Ravimohan, however, said it might not be possible to rate an IPO since the fundamental and market factors need to be considered in isolation.

Crisil is formulating a process whereby information on an IPO can be segregated into fundamental and market factors, without any comments on the pricing of the issue.

The model would assess the company on factors such as management quality, business prospects, financial position, corporate governance and projects, Ravimohan said on the sidelines of a seminar on capital markets here today.

“We may calculate a projected earnings per share of a company, but it is not possible for us to determine the price earnings multiple as that will depend on an investor’s preferences,” said Ravimohan.

There are, however, two schools of thought regarding the IPO assessment system. According to some, the system will provide a tool to help investors make better-informed decisions and judge the quality of issues hitting the market. It will provide basic information and an outlook from an independent and professional entity. Individual investors will no longer have to assess all the information in the prospectus. Furthermore, it will dissuade weak companies from raising easy capital from the market.

Crisil is also exploring opportunities in the Asian and Caribbean countries, which attract lower rating from Standard and Poor’s, to provide credit rating services and is in talks with agencies in those nations. The company has a subsidiary, Cari Cris, in the Caribbean islands.

Ravimohan said Crisil believes there is a high co-relation between stakeholder wealth creation and corporate governance. Only companies with good corporate governance practices and management quality enjoy favourable valuations and a strong credit profile.

Crisil’s corporate governance rating is an analysis of the company’s capabilities in creating, maintaining and managing value, while balancing stakeholder interests. Each stakeholder relationship represents a potential opportunity to be leveraged and a potential threat to sustainable performance.

Crisil has identified the stakeholders as shareholders, creditors, employees, customers, suppliers and the society at large. Parameters have been devised to measure the strength of these relationships based on understanding of general business principles.

Ravimohan also stressed on adequacy of audit procedures. He said the quality of disclosures was important for shareholders, who is entitled to get a true and fair picture of the company. Disclosures relating to the pattern of ownership have to be clear and concise, he added.