Capital markets regulator Sebi on Friday tightened disclosure rules for credit rating agencies (CRAs) and put in place a framework for the de-rating of perpetual debt securities.
The move aims to enable investors and other stakeholders to properly use this information in a fair assessment of credit rating agencies, the Securities and Exchange Board of India (Sebi) said in a circular.
The new framework will apply to credit ratings of securities already listed or offered for listing on a stock exchange.
In order to standardize the methodology for disclosing a “sharp rating action”, Sebi said rating agencies will need to compare two consecutive rating actions.
In addition, a rating agency will have to declare a sharp rating action if the rating change between two consecutive rating actions is greater than or equal to three notches down.
The regulator has mandated rating agencies to develop detailed guidelines on what constitutes non-cooperation by issuers, which includes failure to submit quarterly financial results on time, current and past operational details on investment plans, debt obligations and repayment details, among others, and any other matters deemed appropriate by a credit rating agency based on its internal assessment.
Credit rating agencies should have a detailed policy regarding the methodology for assessing the risk of non-availability of information of issuers, including non-cooperative issuers, and the steps to be taken in various scenarios to determine the status non-cooperation of issuers. issuing company.
“Rating agencies must follow a consistent practice of three consecutive months of non-submission of Non-Default Statement (NDS) (or failure to validate debt service in a timely manner by other sources) as a reason to consider migrating ratings to non-cooperating issuers (INCs) and must label those ratings as INC within 7 days of three consecutive months of not submitting NDS,” Sebi said.
He further stated that the CRA, in its judgment, may migrate a rating to the INC category before the expiration of three consecutive months of non-receipt of NDS.
When withdrawing any credit rating from securities listed or intending to list on a stock exchange, a CRA shall also, in its press release, assign a credit rating to such security, except where there is no outstanding obligations under the CRA-rated security. , or the company whose security is rated is liquidated or merged with another company.
To facilitate the removal of ratings from perpetual debt securities that are listed or offered for listing on an exchange, Sebi has revised the rules, under which a CRA may remove the rating from such securities if the rating agency has rated such securities as continuously for 5 years; or received a commitment from the issuer and other credit rating agencies that a rating is available for such securities.
Under current de-rating provisions, it has been found that when rating perpetual debt securities, such as AT-I bonds, a credit rating can only be de-rated if the security is redeemed . Often this can cause the issuer of such bonds to stop cooperating with the CRA.
To facilitate greater transparency and user-friendliness of disclosures made by rating agencies on their websites, Sebi said such disclosures should be in Excel or machine-readable format and that an archive of the disclosures should be maintained by them on their website for at least 10 years. This also includes press releases on ratings from rating agencies.
In addition, rating agencies will have to separately publish two other cumulative default rates (CDRs) limited to the credit ratings of securities.
The framework relating to pointed rating actions will be applicable from the first half of the 2022-23 financial year, those relating to non-cooperating issuers by March 31, 2023, the reinforced information will be applicable to information made after March 31, 2023 and those relating to rating withdrawal will apply to ratings withdrawn after 30 September.
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