Why should companies get a credit rating?



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Hi Binny,

Credit rating agencies rate bonds and debt instruments. This is done because of regulations. Unlike in the equity market, the companies don't have to make their financials and the other whole list of details public. Moreover companies issuing debt instruments needn't be listed (like tata capital and its NCD issue). Is that why they go instead for a credit rating? What is the whole funda behind it? Do entities opt for getting their listed equity credit rated too?

1 Answer(s)


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In India, under SEBI guidelines, both debt issues and IPO equity issues have to be rated by credit rating agencies.

Lack of public disclosure is rarely a decision making criteria for a company to choose debt over equity. Companies that choose debt, dont want to dilute equity and promoters want to hold majority stake. Companies that choose equity, are typically in their early stage and debt is too expensive for them to consider.