Crisil Unwraps Not Meaningful Rating

The Credit Rating and Information Services of India Ltd (Crisil) has announced that a new category titled NM (Not Meaningful) is to be introduced in its rating scale.

The category refers to those instruments which are in default, expected to default or are vulnerable to default due to external factors such as court cases or Board for Industrial and Financial Reconstruction (BIFR) referrals.

The category would be introduced for all three existing rating scales of Crisil - the long-term scale, fixed deposits and short term debt. The `C' and `D' ratings which indicate circumstances of vulnerability to default and actual default will continue to exist.

According to a statement issued by Crisil, the category would address instances where issuers are chronically sick, have no chance of revival and are not in a position to meet their financial obligations. Such issuers may have also been referred to the BIFR.

Other circumstances where the NM category could be applicable are when the repayment of debt obligations is under a dispute in a court of law, and hence no payments can be made during the case.

The statement points out that the above factors render Crisil's existing ratings outstanding on such issuers meaningless to the investors as the investor is not in a position to know whether the issuer will resume its repayment obligations in view of the existing scenario in the case of rated debt.

"Such instruments are extremely speculative and returns from these instruments may be realised only on reorganisation or liquidation."

Crisil has named five companies to which the new category applies. These companies are Torrent Cables, S&S Power Switchgear, Sandur Manganese and Iron Ore Company, Eastern Mining and Allied Industries And VHEL Industries. The ratings for all these companies were earlier `C' or `D'.