SEBI tightens disclosure rules for rating agencies

In a circular issued on Friday, Sebi said that in order to facilitate the withdrawal of rating of permanent debt security, which are listed or are to be listed on the exchanges, a credit rating agency may withdraw the rating if it considers these securities to be less than Rs. Constantly rates for less. There is a rating available for such bonds for five years, or that the issuer or other agencies have obtained an undertaking.

Perpetual bonds have no maturity date, and are treated as equity. Issuers pay ‘perpetual’ coupons on these bonds, and are not required to redeem the original bond cash flows. As per the extant rules for rating withdrawal, the rating of securities, such as AT-I bonds, cannot be withdrawn until the asset is redeemed. This often results in the bond issuer not cooperating with the rating agency.

In order to bring in greater transparency and make disclosures by rating agencies more useful, SEBI has repeatedly asked agencies to disclose the same in Excel, or machine readable formats, on their websites.

The new SEBI guidelines came after AT1 bonds issued by Yes Bank in March 2020 were written down to zero as part of a restructuring plan, causing huge losses to many investors. In fact, Nippon India Mutual Fund, which had invested in the riskier Additional Tier 1 bonds of Yes Bank, came under the scanner of SEBI. 2,500 crore investment. Bank’s AT1 bond price As part of the RBI’s restructuring plan after the scam, Rs 8,415 crore was written off, rendering the bonds worthless.

Yes Bank picked up 2,000 crore by issuing these bonds to institutional investors like Nippon India MF, Franklin Templeton India, Barclays and Kotak Mutual Fund. Nippon invested about 20% of the total issue. Many investors were surprised by the RBI’s action as bondholders often have priority over shareholders in case of bankruptcy.

With regard to rating withdrawals, Market Watchdog clarified that unless there are outstanding liabilities under the security rating or a company whose security is rated as amalgamated, merged or amalgamated with another company, a rating agency shall not That security must provide a credit rating and report it in a press release when the rating is withdrawn.

Further, the circular clarified that rating agencies should compare two consecutive rating actions to standardize the calculation and disclosure of “fast rating action”. “A CRA shall disclose the faster rating action, if the change between two consecutive rating actions is greater or equal to three degrees below… applicability should be by the first half of the financial year 2022-23,” SEBI said.

SEBI also said that rating agencies should have a detailed policy on non-submission of quarterly financial and performance results, or audited financial results, within the stipulated time frame. This policy should include current and past operating details, including details of capex plans, debt obligations as well as repayment details and other issues, as determined by internal assessment or by the internal policies of the credit rating agency.

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