A memorandum of understanding on the deal was signed in Mumbai on Tuesday. The allotment of shares will be made once the proposal is cleared by the Foreign Investment Promotion Board and Icra shareholders at an extraordinary general meeting being convened in January.

With Moody's picking up stake, Icra's paid-up capial will go up from Rs 7.80 crore to Rs 8.80 crore. The domestic rating agency's authorised capital is pegged at Rs 10 crore. Icra is likely to hike its paid-up equity to Rs 10 crore in the near future by offering Rs 1.20 crore worth of equity shares to its employees. The rating agency may also tap the capital market to expand its equity base, company managing director PK Chowdhury said.

"Technically, none of our existing shareholders havedivested their stakes. Icra made a rights issue in 1996 which was not fully subscribed to by the shareholders in anticipation of Moody's coming in. The global rating agency has picked up the rights issue at Rs 60 per share," an industry source said under condition of anonymity.

Moody's president John Rutherford, Jr refused to comment on the price aspect. "This is Moody's second joint venture abroad. We had picked up a minority stake in Korean Investors Service in August this year. We are becoming more active commercially," Rutherford said.

"Hiking our stake further in Icra will depend on the wishes of other shareholders," he added.

Commenting on the partnership, Icra chairman DN Ghosh said, "Rating standards in the country will have to improve to international levels. This has driven us towards this agreement."

Following today's development, Moody's will become the third-largest shareholder in Icra after Industrial Finance Corporation of India and State Bank of India, ahead of Life InsuranceCorporation and Unit Trust of India.

Moody's decision to pick up an equity stake in Icra comes a little over a year after Standard & Poor's picked up a 9.6 per cent stake in Credit Rating Information Services of India. The third domestic credit-rating agency, Credit Analysis & Research, is likely to follow suit by offering a minority stake to Fitch Ibca with which it has been negotiating for quite sometime now.

Tuesday's development is the culmination of a three-year relationship that Icra has had with Financial Proformas Inc (FPI), a wholly-owned subsidiary of Moody's. Icra had earlier signed an agreement with FPI to provide credit education, risk-management software, credit research and consulting services to commercial banks, financial and investment institutions, financial-services companies and mutual funds in the country.