Crisis in talks with SEBI over rising ‘issuer non-cooperation’ cases

Crisil is in talks with market regulator SEBI to address concerns over the growing number of companies rated as “non-cooperating issuer”.

“We are discussing with regulators how to address this challenge and how we can help improve the whole ecosystem. Investors, banks and stakeholders have visibility into non-cooperation disclosed in press releases and they should also encourage issuers to cooperate with rating agencies,” said Amish Mehta, Managing Director and CEO of Crisil. . Activity area.

The market regulator in 2020 said that if an issuer had an outstanding non-cooperative rating for more than six months, credit rating agencies would downgrade it to a non-investment rating with non-cooperative issuer status. . While regulation was meant to be a deterrent, the number of companies rated as “non-cooperating issuers” rose sharply across all rating agencies, with up to 45-50% of rated entities falling into this category according to industry estimates. . .

Mandatory transparency

“The regulator has mandated rating agencies to highlight non-cooperation, be transparent about it, and keep the ratings of non-cooperative issuers also under scrutiny. Therefore, if a rated company does not cooperate with the rating agency, this will need to be disclosed. This will not be viewed favorably by its stakeholders. CRISIL always actively engages with the client and tries to obtain all necessary information, and also helps the client understand the value of cooperation with rating agencies,” Mehta added.

Under SEBI guidelines, a rating agency can only withdraw ratings once the debt is fully repaid. In case of bank facilities, bankers give a NOC to withdraw the rating. The repayment aspect becomes difficult in the case of facilities like cash credit where there is no set maturity period. Meanwhile, rating agencies continue to rate these companies based on publicly available data, but most say it’s a challenge. Nor was there a decision on a proposal from the rating agencies to withdraw the ratings of these non-cooperating companies.

The regulations are moving in the right direction

Mehta, however, believes that global credit rating regulation is moving in the right direction. “We, too, depend on information and disclosures from issuers, in addition to information from other sources. We would always take the necessary rating action based on available information in a timely manner. For example, SEBI mandated in 2017 that within 5 days, CRAs must issue a press release. These changes have helped standardize the process across the industry and make it transparent for customers. I think some of these steps are going to help you because you’re benchmarking against the best in the world, you’re bringing in some of that thought process. You also learn from your experiences about what happened in the market. The regulator, I’m sure, also uses some of the experiences and shapes the regulations to make the ecosystem even more robust. said Mehta.

Published on

June 05, 2022

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