SEBI asking rating agencies to avoid suspending cos not a ‘right move’

Market experts have expressed their reservations over a SEBI move asking credit rating agencies (CRAs) to avoid suspension of ratings in the event of companies not providing them the requisite information.

SEBI is said to have told CRAs in a meeting last Thursday to devise other methods and submit a draft paper (in 30 days) on these methods, besides continuing their evaluation based on publicly available information, according to a senior rating agency official.

The regulator seems to have taken this step in the wake of rating suspension/downgrade by CRAs in the recent past — the most prominent being Amtek Auto.

Arun Kejriwal, Founder - KRIS Research, says, “The primary purpose of a CRA is to evaluate the creditworthiness of a borrower/company. This information is paramount to any lender, whether it is a bank or a debt instrument investor. When an entity which has been rated refuses information updates, it amounts to deterioration in credit quality which forces the CRA to either downgrade or suspend the rating.

“Though SEBI’s move to find an alternative is welcome, there seems to be very few alternatives, when the borrower’s fundamentals have already deteriorated. Asking CRAs to go slow in the intervening period could result in damaging the health of the banking industry.”

Those in the trade also suggested penalising companies for not providing information to CRAs. “There are three entities involved — the CRA, the company and the investor. Nothing stops the regulators from penalising a company for not sharing information,” said a rating agency official, requesting anonymity.

There are others who are in favour of pulling up the trustee companies of AMCs for not discharging their fiduciary duty.

A senior official of another rating agency said, “If the yield of an instrument invested by the fund manager is not in sync with the market yield, the AMC should take it on record and report it to its investment committee. The committee should then give this exception report to the trustee company and also to AMFI for analysing the fund managers’ actions.”

Another opinion which emerged suggested questioning the role of independent directors in companies whose ratings had been suspended.

COMMENT NOW