SEBI Plan to Make Rating Agencies Vet Equity Fundraisers
Why in the news
SEBI suggested that rating agencies act as an added filter on firms seeking money from equity investors, so that questionable companies stay out of capital markets.
Key facts
- Proposer: SEBI; role given to credit rating agencies (CRAs).
- Fund-use monitoring: watch how raised money is spent, to prevent misuse of public funds.
- Need check: judge whether the equity raise is justified and its size suits the firm’s business needs and track record.
About CRAs
- They give an independent view on the creditworthiness of debt securities.
- Known weakness: conflict of interest, since lately issuers rather than investors pay them.
Exam angle
- Regulator: SEBI.
- CRAs traditionally rate debt; this extends scrutiny to equity raising.