Sebi allows debt issuers to review credit rating by agencies

Markets regulator Sebi today allowed debt issuers to review ratings given by agencies, a move that will check the menace of 'rating shopping' and 'pick-and-choose' approach in their actions.

In the past, several firms have expressed dissatisfaction against credit rating agencies (CRAs) after ratings on their debt were suddenly downgraded or withdrawn.

Now, such firms may approach credit rating agencies with more supporting documents for a better rating.

"In the interest of transparency and fairness, it has been decided that all cases of requests by an issuers for review of the rating(s) provided to its instrument(s) by the CRA, shall be reviewed by a rating committee of the CRA that shall consist of a majority of independent members," Sebi said in a circular.

The move is aimed at enhancing the governance, accountability and functioning of credit rating agencies (CRAs), the Securities and Exchange Board of India (Sebi) added.

The regulator has also defined "independent" members as those people that have any no pecuniary relationship with the CRA or any of its employees.

In order to make the disclosures more relevant, Sebi said that all non accepted ratings will have to be disclosed on the CRA's website for a period of 12 months in a prescribed format.

This disclosure includes name of the issuer, sector, type of instrument, issue size, listing status of the instrument, rating assigned as well as date of non-acceptance of rating.

Besides, Sebi said that a rating summary sheet presenting a snapshot of the rating actions carried out during the half-year, would have to be uploaded by the CRAs on their websites on a half-yearly basis, within 15 days from the end of the half-year.

For ease of understanding by the investors, the regulator said that disclosures need to be prepared and disclosed separately for ratings of securities; and financial instruments other than securities.

The decision has been taken after taking into consideration suggestions of all the stakeholder on the consultation paper, comprising proposals pertaining to rating process followed by the CRAs and disclosures pertaining to the ratings assigned, issued last year.