Ratings: Sebi comes down on non-cooperating issuers

In order to further strengthen the rating process, the Sebi issued directions to credit rating agencies (CRAs) with regard to issuers who do not cooperate. The markets regulator in a circular said if an issuer has an outstanding rating as non-cooperative for more then six months, credit rating agencies would downgrade it to non-investment grade with the Issuer Not Cooperating (INC) status.

Further, if there is non-cooperation by the issuer for another six months from the date of downgrade to non-investment grade, no credit rating agencies shall assign any new rating to such an issuer. Sebi in its circular issued on Friday said, “If an issuer has all the outstanding ratings as non-cooperative for more than six months, then the CRA shall downgrade the rating assigned to the instrument of such issuer to non-investment grade with INC status.

If non-cooperation by the issuer continues for further six months from the date of downgrade to non-investment grade, no CRA shall assign any new ratings to such issuer until the issuer resumes cooperation or the rating is withdrawn.”

Officials in the credit rating agencies say the move is more stringent towards the issuer as the entity has to cooperate with rating agencies and operational cost of rating agencies will come down with this circular. “Several small companies don’t want their instruments to get rated because of multiple reasons. They might get rating from another rating agencies at much cheaper cost. In many cases, they don’t share information with us because they fear we will downgrade them. So, if we don’t get any information, we continue to rate them throughout the instruments lifetime as INC,” said a senior official from a leading rating agency.

In the past two-three years, due to the lack of information provided by the issuer, CRAs were assigning INC to many instruments. Currently, in case of non-cooperation by the issuer, the rating agencies continue to review the instrument on an ongoing basis throughout the instrument’s lifetime, on the basis of best available information. In such cases, the credit rating symbol is accompanied by “Issuer did not co-operate, based on best available information” in the same font size.