648 firms refuse to accept credit ratings given by various agencies

SEBI’s attempts to bring more transparency in the operations of credit rating agencies appear to be slowly bearing fruit.

New disclosures that agencies have been required to make since January 1 include naming borrowing companies unhappy with the ratings assigned to them and disclosing if a borrower has a history of not cooperating with another agency in providing accurate financial information.

The first of these disclosures show that between January 1 and June 5, 648 companies did not accept the credit ratings assigned to them by the four major domestic rating agencies.

On November 1, the securities market regulator mandated all rating agencies should disclose ratings assigned by them, irrespective of whether the rating is accepted by a borrower or not. The disclosures should include the name of the borrowing company, the size of the loan or bond issue and the rating assigned to it. With the rules coming into force from January, the aggregate figure for companies that have declined to accept ratings assigned to them by the four large domestic credit rating agencies — Crisil, India Ratings, ICRA and CARE — was 648. The universe for credit rating agencies includes listed and unlisted firms.

“The new disclosures are definitely a hygiene check for lenders,” Lakshmi Iyer, Chief Investment Officer (Debt) and Head – Products, Kotak Asset Management, told BusinessLine . “This is not the only yardstick we use when processing information, but it is important. I think the new rules on disclosures, withdrawal of ratings have disincentivised rating-shopping; it has a certain suasion.” While the agencies do not give specific data, a perusal shows the bulk of unaccepted ratings are in the speculative or junk bond category, largely in manufacturing, construction and utilities. Senior officers at the agencies, however, did not wish to comment on the data or give comparable historical information.

After SEBI tightened norms last year, agencies must now also disclose if a borrower has a history of non-cooperation or non-acceptance of a rating with another rating agency in the past. This is to crack down on instances of rating-shopping, where a borrower who is unhappy with the rating assigned by one agency approaches another for a higher rating. For example, India Ratings — the India arm of global rating agency Fitch — said it had rated 113 companies in the January-June period which had a history of non-cooperation with a previous agency. (At the time of going to print, Crisil, CARE and ICRA were unable to provide similar information.)

Rating agencies are also no longer allowed to withdraw ratings on an outstanding instrument during its lifetime, which led to the recent instance of Crisil saying that Adani Power was not providing information on outstanding debentures, even as the company had switched to ratings from CARE in 2015.

“We still don’t have a perfect 10 in terms of ratings, but the transparency has increased. I think the agencies have been doing their job well; they’ve been downgrading PSU banks left, right and centre, though they have room to react to information much faster,” Iyer said.

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