Sebi changes the qualification rules to stop cos purchases
Mumbai: To stop the rating of purchases by companies, the market regulator Sebi On Friday he said that in the event that a company does not provide information to a credit rating agency (CRA) for six months in a row for its ratings, its rating will have to be mandatorily reduced to a degree of no investment/garbage.
Rating shopping is a surreptitious method used by companies when they move from one rating agency to another till they get a grade that is to their liking. After these companies get a preferred rating, they stop providing information to those rating agencies that did not give them a favorable grade. Sebi is trying to clamp down exactly on this surreptitious method used by the companies.
Recently the RBI too, in its bi-annual publication relating to financial stability of banks, warned of rating shopping by the corporates and mentioned that Sebi was working to address this issue. The Sebi in its circular said that to strengthen the rating process of the CRAs with regard to ‘Issuer not cooperating’ (INC) ratings, it has taken some decisions.
“If an issuer has all the outstanding ratings as non-cooperative for more than six months, then the CRA shall downgrade the rating assigned to the instrument of such issuer to non-investment grade with INC status. If non-cooperation by the issuer continues for further six months from the date of downgrade to non-investment grade, no CRA shall assign any new ratings to such issuer until the issuer resumes cooperation or the rating is withdrawn, ”Sebi said.
The regulator also prescribed how CRAs could withdraw ratings in such situations. These changes will be applicable immediately, Sebi said.