SEBI modifies rating withdrawal norms for CRAs
By : Legal Era
Update: 2020-01-06 12:28 GMT
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[ by Kavita Krishnan ]The Securities and Exchange Board of India (SEBI) has tightened the noose around the corporates, saying if companies are not co-operating with credit rating agencies (CRAs) on disclosure of loan defaults, then the CRAs should issue INC (‘Issuer not co-operating’) ratings.“If an issuer has all the outstanding ratings as non-cooperative for more than six months, then...
The Securities and Exchange Board of India (SEBI) has tightened the noose around the corporates, saying if companies are not co-operating with credit rating agencies (CRAs) on disclosure of loan defaults, then the CRAs should issue INC (‘Issuer not co-operating’) ratings.
“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 withdraw,” the SEBI said in a circular.
CRAs define non-cooperation by issuers as when they don’t provide adequate information to conduct a rating exercise or in case of non-payment of fees by the issuer for the review.
The SEBI said if non-cooperation by the issuer continues for another six months from the date of downgrade to non-investment grade, no new ratings to such issuer should be assigned (effective immediately) until the issuer resumes co-operation or the rating is withdrawn.
Last year in November, SEBI had mandated listed companies to make public disclosure on stock exchanges about default in payment of interest obligations on loans, including revolving facilities like cash credit from banks or financial institutions beyond 30 days.
Companies are also required to disclose default in case of unlisted debt securities such as non convertible debentures within 24 hours from the occurrence of default.
The markets regulator said that in case of multiple ratings on an instrument, where there is no regulatory mandate for multiple ratings, a CRA should withdraw a rating earlier provided the CRA has rated the instrument continuously for three years or 50% of the tenure of the instrument, whichever is higher and received a no-objection certificate from 75% of bondholders of the outstanding debt for withdrawal of rating.