Markets regulator Securities and Exchange Board of India (Sebi) plans to seek detailed explanation from credit rating agencies CRISIL and Care Ratings over suspension of rating in the case of beleaguered Amtek Auto. “Sebi has initiated adjudicating proceedings against these two rating agencies. The regulator has appointed an officer to probe the irregularities in their rating coverage in the case of Amtek Auto,” said a person close to the development.
Sebi might soon issue showcause notices to the credit rating agencies, added another source. CRISIL and Care said they haven’t received any communication with regard to any probe on their Amtek Auto coverage. Care and CRISIL had suspended their rating coverage on debentures issued by debt-laden Amtek Auto. The rating agencies said Amtek wasn’t providing adequate information for them to monitor its performance. “We have not received any intimation from Sebi on the Amtek Auto case,” said a Crisil spokesperson.
Suspension of coverage by rating agencies isn’t an uncommon practice. Rating agencies suspend coverage due to a number of reasons, including unavailability of sufficient information to monitor rating and commercial reasons like non-payment of dues.
Suspension of rating has been a contentious issue between Sebi and credit rating agencies. Sebi is of the view that suspension should be avoided. However, if a rating agency does suspend coverage, it should provide a detailed reasoning for doing so.
“Any rating exercise requires full cooperation of the company as we go beyond publicly available information…If satisfactory responses are not provided or there is no response from the company, then we are duty-bound to suspend the rating as we are responsible to the investors. Suspension becomes unavoidable at times as we may not be in a position to take a call on the credit profile of the company in the absence of cooperation from the company’s end,” said T N Arun Kumar, executive director, Care Ratings.
Sebi is also of the view that rating agencies should act on early signs of warning in order to help investors.
Sebi had rating agencies have had several discussions in the recent past to address the issue of suspension and reacting to early signs of warnings. Sources said the market regulator is soon expected to issue guidelines in this regard.
“Sebi is in the final stages of formulating new disclosure regulations on credit rating agencies, and might soon come out with revised rules. Under new norms, rating agencies should be made more responsible and accountable,” said a source quoted earlier.