'Avoid litigation with credit rating agencies'

Sebi chief tells India Inc to be transparent, adhere to norms

Securities and Exchange Board of India (Sebi) Chairman U K Sinha on Wednesday asked companies raising capital from the public to be transparent, adhere to norms and avoid litigation with credit rating agencies.

“My message to corporates is they should be willing to follow the rules if they are raising money from the public or any institution, rather than be upset if something has been changed,” Sinha said on the sidelines of the India Securitisation Summit.

When asked about companies dragging credit rating agencies to court, he said, “I think good sense will prevail upon the companies. I am also sure all courts in the country are aware if Sebi is regulating a particular industry or particular instrument is being looked at by Sebi…they will let the due process prevail, rather than come in the way of this.”

Yesterday, Sebi officials held a meeting with officials from credit rating agencies. At the meeting, various issues, including litigation from some companies, were discussed. While Sebi asked the agencies to ensure their rating methodology was “sacrosanct”, the agencies expressed concern on litigation and the fact that some companies didn’t share complete information with them.

Recently, Kolkata-based Srei Infrastructure Finance had moved the Calcutta High Court after rating agency India Ratings & Research, formerly Fitch Ratings India, cut its rating. Srei also terminated its contract with the rating agency.

“It is for regulators to protect the interests of investors and ensure rating agencies are able to express their opinion in a free manner,” said Atul Joshi, managing director and chief executive, India Ratings.

Sinha said after wide consultations, Sebi might look at revising the guidelines for credit rating agencies. “After yesterday’s dialogue with rating agencies, Sebi would engage all entities in the chain and try to improve the system,” he said, adding, “Our aim will not only be to help the industry, but also ensure investors’ interest is taken care of.”

The Sebi chief also highlighted a few procedural hurdles regarding rating companies’ financial instruments, such as bank loans. “There are issues. For example, how does one recognise and ensure information flow when a company has defaulted to a bank, even for a single day?” he asked. “As a rating agency, it is their duty to inform the public about a change in the status of a company or an instrument they have rated.”