India Rater Plummets as Credit Market Crisis Pose Business Risks

(Bloomberg) -- Shares of a rating company that failed to foresee signs of stress at the now-bankrupt IL&FS group nosedived after reporting the lowest quarterly profit since its trading debut in 2012.

Care Ratings Ltd. plummeted by 20% to a record low of 486.70 rupees at 12:53 pm trading in Mumbai on Friday, extending a similar-sized drop the previous day. The sharpest drop in the shares on record comes after the company reported its lowest quarterly results since listing in 2012.

Care and another Indian rater ICRA Ltd. have faced criticism from investors for misreading risk at IL&FS Group to Dewan Housing Ltd., whose string of defaults triggered a drop in growth of outstanding rupee bonds to the lowest since 2006. The Securities and Exchange Board of India is tightening rules for rating firms to restore investor faith in the system, adding to the qualms of shareholders.   

“Concerns are due to the systemic failure of their rating process that has led to a regulatory overhang,” said Ajay Bodke, chief executive officer for portfolio management services at Prabhudas Lilladher Ltd. “With the fresh debt issuance seeing a precipitous slide there will be savage earnings hit for the rating companies as their costs are relatively inelastic.”

Care also warned on Wednesday that its earnings trajectory will be dependent on financial markets, which are still recovering from the knock-on effects from the year-ago ILFS crisis. Boards of Care and ICRA has put their chief executives on leave pending a probe into an anonymous complaint received by SEBI.

To contact the reporter on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Anto Antony, Ravil Shirodkar

©2019 Bloomberg L.P.