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by : DR. T.K. JAIN AFTERSCHOOL centre for social entrepreneurship sivakamu veterinary hospital road
My words....
Here I present a few basic questions on sebi,
regulation,
I wish that more and more people should become entrepreneurs. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation but we have to strengthen those institutions which truly promote entrepreneurship, not just degree granting institutions. Let us work together to promote knowledge, wisdom, social development and education. We believe in free education for all, free support for all, entrepreneurship opportunities and training for all. Let us work together for these goals. ... I alone cant do much, I need support of perosns like you .......... ...
5 DECEMBER 09
What will happen if a company doesnt receive minimum subscription of 90% of the net offer to public including devolvement of Underwriters within 60 days from the date of closure of the issue
the company will have to refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company is required to pay interest prescribed under Section 73 of the Companies Act 1956.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 3
Can a company, whose FCD are due for conversion issue bonus / rights issue ?
no A company, pending conversion of fully convertible debentures or partly convertible debentures can make issue of any shares by way of bonus or rights unless similar benefit is extended to the holders of such FCDs or PCDs, through reservation of shares in proportion to such convertible part of FCDs/PCDs
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 4
Can a company whose application moneys have yet to be be refunded on account of non-listing raise additional capital ?
No issue of capital by way of bonus shares, preferential allotment, rights issue or public issue or otherwise is not allowed.
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No No additional issue of capital by way of bonus shares, preferential allotment, rights issue or public issue or otherwise is permitted during the period commencing from submission of offer document to SEBI on behalf of the company for public or rights issue till the securities referred to in the said offer document have been listed
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 6
A minimum 50% of the net offer of securities to the public must be issued to retail individual investors, who are the retail investors?
Who is holding shares which, on the basis of the closing price of the shares as on the previous day, are worth up to Rs. 1,00,000/- / applies or bids for securities of or for a value of not more than Rs. 1,00,000/-.
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What is the time within which monitoring report must be submitted by lead merchant banker post isssue ?
The post-issue Lead Merchant Banker must submit the post-issue monitoring reports as per formats specified, Irrespective of the level of subscription within 3 working days from the due dates.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 11
What is the time limit for submission of Final post issue monitoring report for all issues?
The due date for this report is the 3rd day from the date of listing or 78 days from the date of closure of the subscription of the issue, whichever is earlier
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What are the due datesfor submitting post issue monitoring report in case of Rights issues.
3rd day from the date of closure of subscription of the issue. 50th day from the date of closure of subscription of the issue. due diligence certificate has to be submitted along with final post issue monitoring report.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 13
What details must a company submit in offer documents about arrangements for redressal of investor grievances.
the time normally taken by it for disposal of various types of investor grievances. Details of the listed companies under the same management within the meaning of Section 370(1B) of the Companies Act for the period of 3 years prior to the date of filing of the offer documents with ROC/Stock Exchange.
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those having business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering, provided that allotment to such persons shall not exceed 5% of the issue size.
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The cap of the price band should not be more than 20% of the floor of the band
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What is the time limit for which bidding may remain open ?
Bid shall be open for atleast three days and not more than seven working days, which may be extended to a maximum of ten working days in case the price band is revised in accordance with the guidelines
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The maximum number of shares (as also the percentage vis-a-vis the proposed issue size) proposed to be over-allotted by the company.
The period, for which the company proposes to avail of the stabilisation mechanism. The maximum increase in the capital of the company and the shareholding pattern post issue, in case the company is required to allot further shares to the extent of over-allotment in the issue. The maximum amount of funds to be received by the company in case of further allotment Details of the agreement/arrangement entered into by SA
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The average market capitalisation of public shareholding of the company is at least Rs. 10,000 crores for a period of one year
trading turnover of the shares of the company during six calendar months immediately preceding the month has been at least two per cent redressed at least 95% of the total shareholder/investor grievances complied with the listing agreement for a period of at least three years auditor's qualifications does not exceed 5% of the net profit
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 35
If your networth is Rs. 10 crore, how much IPO can you go for ?
= 50 10 = 40 you can go for maximum 40 crore IPO so that your post issue networth becomes 50 crores (five times its pre-issue net worth )
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Vivek Borar Transports Ltd. Converted its name to VB Logistics Ltd. In 2009-10. Its networth is Rs. 30 Crore. It earned profit of Rs. 8 crore with earlier name and Rs. 2 crore with new name in 2009-10. can it go for IPO in 2010-11
No at least 5 Crore must be with new name ( 50% of the revenue for the preceding 1 full year must be earned by
the company from the activity suggested by the new name)
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A company to file a draft prospectus through eligible Merchant Banker with SEBI at least 30 days prior to the filing of prospectus with the Registrar of Companies as prescribed
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Section 11 in Chapter IV of the SEBI Act lists out the functions of the SEBI. There are 15 functions provided for SEBI in this section. The important functions are to supervise stock exchanges and to prevent frauds.
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contd....
Under Section 23, 23M of SCRA 1956, there is a provision for for penalty for imprisonment for a term which may extend to 10 years or with fine which may extend to Rs. 25 crore or both for contravention or attempts to contravene or abates the contravention of the provisions of the Act or any rules or regulations or bylaws.
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Mortgage is a conveyance of property, subject to a right of redemption whereas a charge only gives a right to payment out of a particular immovable property without transfering it
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Typically a mortgage is a loan secured by real property (land etc. ) and collateral is personal property (jewels, bonds, valuables, etc.) used to secure a loan.
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These instruments are not direct debt instruments. Instead they derive value from various debt instruments. Mortgage bonds, Pass Through Certificates, Securitised Debt Instruments etc. fall under this category.
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Stock exchange
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MCA
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Debenture trustee
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Stock exchange
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Registrar to issue
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Whom should investor approach in case of grievance relating to fixed deposits etc ?
RBI
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Whom should investor approach in case of grievance relating to Fixed Deposits in manufacturing companies?
MCA
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Whom should investor approach in case of grievance relating to Deposits in collective investment schemes like plantations, etc.?
SEBI
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Whom should investor approach in case of grievance relating to Regarding shares or debentures in unlisted companies?
MCA
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SEBI
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Section 58AA: a depositor who has deposited in a financial year a sum not exceeding Rs. 20,000/- in a company and includes its successors, nominees and legal representatives.
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Section 621 of the Companies Act, 1956 permits the shareholder to proceed against the company and its officers in a court of lawfor offences by company regarding prospectus etc.
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What is FCCB?
Foreign Currency Convertible Bonds means bonds issued in accordance with this scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 96
What is GDR?
Global Depository Receipts means any instrument in the form of a Depository receipt or certificate (by whatever name it is called ) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company
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No, The FCCBs are unsecured, carry a fixed rate of interest and an option for conversion into a fixed number of equity shares of the issuer company.
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Conversion of Foreign Currency Convertible Bonds into shares does not give rise to any capital gains liable to income-tax in India.
Transfers of Foreign Currency Convertible Bonds made outside India by a non-resident investor to another non-resident investor does not give rise to any capital gains liable to tax in India.
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The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date (thirty days prior to the date on which the meeting of the general body of shareholders is held);
The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. 5 DECEMBER 09 www.afterschool.tk 103
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What are the cases where FCCB is permitted under Automatic approval
To Financial institutions dealing exclusively with infrastructure or export finance such as IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank are considered on a case by case basis. Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by Reserve Bank based on prudential norms. ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.
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Corporates can avail of ECB of an additional amount of USD 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year. However, other ECB criteria such as end-use, all-in-cost ceiling, recognized lender, etc. need to be complied with. Prepayment and call/put options, however, are not permissible for such ECB up to a period of 10 years
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What are the activities for which ECB proceeds is not permitted to be used ?
for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except banks and financial institutions eligible (b), real estate, working capital, general corporate purpose and repayment of existing Rupee loans.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 111
What are the forms for reporting ECB conversion into equity?
Submit FC-GPR to the concerned Regional Office of the Reserve Bank as well as in form ECB-2 to the DESACS, RBI within seven working days from the close of month . The words "ECB wholly / partially converted to equity" should be clearly indicated on top of the ECB-2 form.
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FCCB AND ORDINARY SHARES (THROUGH DEPOSITORY RECEIPT MECHANISM) SCHEME, 1993
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Yes 25% of the FCCB proceeds can be used for general corporate restructuring.
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the issuing company cannot plan its capital structure as it is not assured of conversion of FCCBs. Moreover, the projections for cash outflow at the time of maturity cannot be made.
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Qualified Institutional Buyers (QIBs) are the institutional investors who have atleast USD 100 Million under their portfolio to invest.
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ADR/GDR are reckoned as part of Foreign Direct Investment (FDI). Accordingly, such issue would need to confirm to the existing FDI Policy and only in areas where FDI is permissible.
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What is IDR ?
IDR (Indian Depository Receipt) means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. Domestic Depository means custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.
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What is eligibility condition for Its pre-issue issue of IDR ?free reserves paid-up capital and
are at least US$ 100 millions and it has had an average turnover of US$ 500 million during the 3 financial years preceding the issue. It has been making profits for at least five years preceding the issue and has been declaring dividend of not less than 10% each year for the said period. Its pre-issue debt equity ratio is not more than 5 DECEMBER 09 www.afterschool.tk 127 2:1.& othermaterial of PGPSE / CSE of SEBI conditions study
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What other documents are required to be defining the constitution ofSEBI? instrument constituting or submitted to the issuing
company. the enactments or provisions having the force of law by or under which the incorporation of the issuing company was effected. if the issuing company has established place of business in India, address of its principal office in India. if the issuing company does not establish principal place of business in India, an address in India where the said instrument, enactments or provision or copies thereof are available for public inspection. a certified copy of the certificate of incorporation of the issuing company in the country in which it is incorporated;
copies of the agreements entered into between the issuing company, the overseas custodianwww.afterschool.tk domestic depository. 130 bank and the 5 DECEMBER 09
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What are the activities for which investor education and protection fund is used ?Media Education programme through
Organizing Seminars and Symposia Proposals for registration of Voluntary Associations or Institution or other organizations engaged in Investor Education and Protection activities
Proposals for projects for Investors Education and Protection including research activities and proposals for financing such projects
Coordinating with institutions engaged in Investor Education, awareness and protection activities.
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has served for a minimum period of ten years in any public financial institution.
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What are the matters for which an investor may approach ombudsman ?
Non-receipt of refund orders, allotment letters in respect of a public issue of securities of companies or units of mutual funds or collective investments schemes /share certificates, unit certificates, debenture certificates, bonus shares /dividend / interest on debentures, redemption amount /annual reports or statements / redemption amount from a mutual fund or returns from collective investment scheme
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Committee convenor banks to set up, on a pilot basis, a financial literacy-cum-counselling centre in any one district, and based on the experience gained, to ask the concerned lead banks to set up such centres in other districts. It has also undertaken a project on financial literacy by asking banks to introduce comic books explaining terms like inflation, how to 5 DECEMBERopen an account, interest rates, et 09 www.afterschool.tk 143
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How can you become entrepreneur in investor education RBI has advised State Level Bankers ?
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IDR issued by any issuing company in any financial year should not exceed 15 per cent of its paid-up capital and free reserves.
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a scheme of a mutual fund set up with the objective of investing exclusively in money market instruments (short term investment).
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What is the difference between closed end and open end scheme?
Close-ended scheme means any scheme of a mutual fund in which the period of maturity of scheme is specified. Open-ended scheme means a scheme of a mutual fund which offers units for sale without specifying any duration for redemption.
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Gold related instrument means such instrument having gold as underlying, as may be specified by the Board from time to time
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Gold exchange traded fund scheme means a mutual fund scheme that invests primarily in gold or gold related instruments.
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Who is a Sponsor ?
any person who, acting alone or in combination with another body corporate establishes a mutual fund.
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When a mutual fund is setup, there is a trust deed with trustees and there is an investment management agreement.
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Can AMC randomly invest the money raised under various schemes ?
No , AMC has to invest the funds raised under various schemes in accordance with the provisions of the Trust Deed and the Regulations
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No mutual fund under all its schemes should own more than 10% of any companys paid up capital carrying voting rights
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Calculate value of right if share price ex-right is 200 and price of right is 90 per share. 3 Rights are available against 10 shares.
3/10 (200 90) =3/10 * 110 =33 answer
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No
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Dividend income earned by a scheme should be recognised, not on the date of dividend is declared, but on the date the share is quoted on an ex-dividend basis
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mutual fund must mark all investments to market and carry investments in the balance sheet at market value.
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How should initial expenses be shown in case of a close ended scheme floated on a load basis?
For a close ended scheme floated on a load basis, the initial issue expenses shall be amortised on a weekly basis over the period of the scheme.
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For schemes floated on a no-load basis, the AMC may levy an additional management fee not exceeding 1% of the NAV.
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What are the risks in investing in mutual funds ? Excessive diversification of portfolio;
losing focus on the securities of the key segments; Too much concentration on blue-chip securities; Poor planning of investment with minimum returns; Unresearched forecast Market 5 DECEMBER 09 fluctuations may impact the returns 187 www.afterschool.tk
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If an investor invests Rs. 20,000/- in a scheme that charges a 2% Front end Load at an NAV per unit of Rs. 20/-, the Public Offer Price (POP) will be ?
Public Offer Price = Net Asset Value /(1Front end load) =20/(1-.02) = 20.41 answer
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This will be a fixed fee redemption load or a contingent deferred sales charge. A redemption load exists permanently and is paid only at the time of redeeming units
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What is CDSC?
Contingent Deferred Sales Charges (CDSC) is a structured back end load paid when the units are redeemed during the initial of ownership. The longer the investor remains invested in the fund the lower the CDSC.
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What is AMC?
Asset Management Company means a company formed by mutual fund for managing its assets and registered under the Companies Act, 1956 and approved as such by SEBI under Regulation 21(2).
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Who is a custodian ?
Custodian means a person who has been granted a certificate of registration to carry on the business of custodian securities under SEBI (Custodian of Securities) Regulations, 1996.
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Bankers to issue.
Debenture Trustees.
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They are companies /firms which are engaged in share transfers and other related work. They have to be registered with SEBI as per (REGISTRARS TO AN ISSUE AND SHARE TRANSFER AGENTS) RULES, 1993
The stock broker-underwriter should have capital adequacy as prescribed by the stock exchange.
The merchant banker-underwriter shall fulfill capital adequacy as laid down in Merchant Bankers Regulations.
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What is a warrant ?
It entitles the holder to buy stock of the issuing company at a specified price, which can be higher or lower than the stock price at time of issue. It is an option. It can be call or put warrant. Call = right to buy, put = right to sell
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What are the matters in the agreement of bankers to the issue with theat which the application and the application body corporate? the number of centres
monies of an issue of a body corporate will be collected from the investors;
the time within which the statements regarding the applications and the application monies received from the investors investing in an issue of a body corporate will be forwarded to the registrar to an issue of the body corporate, as the case may be; the daily statement will be sent by the designated controlling branch of the bankers to the issue to the registrar to an issue indicating the number of body corporate and the amount of application money received.
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any company or a body corporate, having continuous net worth of minimum rupees one hundred crores (for 5 years)
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The credit rating agency should avoid any conflict of interest of any member of its rating committee participating in the rating analysis. Any potential conflict of interest shall be disclosed to the client.
A credit rating agency should not indulge in unfair competition nor they wean away client of any other rating agency on assurance of higher rating.
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What is securitisation?
The process of converting loans or receivables into negotiable instruments is known as securitisation.
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Can the ratings be published by the agency without approval and with the permission of the issuer?
No, The ratings can be published by the agency only after approval and with the permission of the issuer. Subsequent changes emerging out of the monitoring by the credit rating agency will be published even if such changes are not found acceptable to the issuers.
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Ratings are broadly divided into two categories - Secure and Vulnerable. Secure = AAA to BBB Vulnerable = BB to D.
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Can a rating agency undertake rating of a company which is subsidiary of the company which is promotor of the credit rating agency ?
No No credit rating agency should rate a security issued by an entity, which is a borrower of its promoter or a subsidiary of its promoter or an associate of its promoter, if there are common Chairman / Directors / common employees, /common Chairman, Directors, Employees on the rating committee. No credit rating agency should rate a security issued by its associate or subsidiary, if the credit rating agency or its rating committee has a Chairman, director or employee who is also a Chairman, director or employee of any such entity.
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