ICRA IPO money meant for existing shareholders - VC of ICRA

ICRA is coming out with an IPO in the price band of Rs 275-300. Vice Chairman of ICRA, PK Choudhury comments on the IPO. Choudhary says that they are not raising any share themselves. The IPO was offered for sale by two of their major shareholders, IFCI and UTI.

Choudhary adds that they are not raising any money for their expansion plan. All the money has been raised for existing shareholders and the money is not coming to ICRA.

He adds that their ratings business generates a lot of cash and they have a godd portfolio of investment, which can be diluted at a short notice for their future expansion plans.

Excerpts from CNBC – TV18’s exclusive interview with PK Choudhary:

Q: Outline for us why aren’t you raising capital by dilution and why is there only an exchange of shares?

A: First of all, we are not raising any share ourselves. This IPO is actually offered for sale by two of our major shareholders IFCI and UTI and they are offering about 21% of IFCI and about 7.95% of UTI.

So far as ICRA is concerned, we are making two issues; one to our Employees Welfare Trust and one to Moody’s to reduce the extent of dilution of Moody’s and Employees Welfare Trust for the purpose of employees stock option. What we have done is, our existing shareholder’s capital is Rs 8.80 crore, as per listing guidelines, we need to raise it to Rs 10 crore, so the differential is being issued to the Employees Welfare Trust and also to Moody's Investor Service.

Q: Specifically, with regards to this issue, would you just walk us through some of the final points of the company; one, in terms of what sort of market share you enjoy and secondly do you not feel the need to raise any further capital to expand, because as we understand, you just have about 20% market share as things stand currently?

A: I do not know from where you got the number of market shares but what I can tell you is the number of live outstanding rating by different rating agencies forms a part of the offer document and as per offer document we have 398 live issuers who are using our rating at present, as compared to our competitors ranging between 416 and 266 and 140 odd. So this 20% market share, I don’t know whether it is correct.

Q: Could you tell us what your market share is currently?

A: Its not market share in terms of revenue, the market share is normally calculated on the basis of number of issues outstanding. I cannot give percentage but what I can tell is who has how many issues outstanding or how many issues are outstanding live issuers, we can give you that number.

ICRA – 398 live outstanding issuers
CRISIL – 413 live outstanding issuers
FITCH – 160 live issuers
CARE – 266 live outstanding issuers

These are figures taken from date-on-date.

Q: Specifically, why IFCI, SBI and UTI are looking to exit at this point of time?

A: At this stage, what you feel is the existing shareholders, particularly the large shareholders, who have invested money long back, they thought that they need to have an exit option, particularly SU-UTI because their scheme is going to close.

So at the same time they felt that the market dynamics is what can give them the good price indication. The price discovery to IPO route was possibly the best and most optimum route and that’s why they have selected this option.

Q: All the funds garnered from this IPO, will that be enough for your expansion plan or are you going to be looking at further dilution going forward?

A: We are not raising any money for our expansion plan. All the money has been raised for existing shareholders and money is not coming to ICRA. What’s happening is the money, only which is additional issue you are making that preferential allotment to Moody’s, only that part is coming to ICRA and that again is not for the purpose of our expansion plan.

You may be aware that ratings business generates lot of cash and this cash is with us. We have a good portfolio of investment on our own mutual fund investment, which can be diluted at a very short notice for our future expansion plan.

Q: We have seen so many recent listings that have come in from the primary market that have not recovered their issue price as well at this point of time - are you at Crisil in talks internally or with the regulators to try and branch out your rating network to actually focus on some of these IPOs and come out with some quality gradation and would you require any sort of funding for that or will this transfer of shares pretty much take care of that?

A: The IPO grading doesn’t need a substantial investment. If you observe the recent past Sebi is actually encouraging the corporates when they are coming with IPO issue to get it graded. So there is a sort of effort on the part of regulators to induce the IPO issuers to come to the market with a proper grading.