Rating Companies Soar After India Imposes Small Fine for Missing Default
Shares of rating companies that missed signs of a default that triggered India’s mini-Lehman moment are now soaring.
(Bloomberg) -- Shares of rating companies that missed signs of a default that triggered India’s mini-Lehman moment are soaring after the nation’s markets regulator imposed only a small penalty.
Care Ratings Ltd. posted record gains and Icra Ltd. saw its biggest four-day advance in more than a year after the Securities and Exchange Board of India on Dec. 26 fined them 2.5 million rupees ($35,000) each on charges they overlooked facts while assessing Infrastructure Leasing & Financial Services Ltd. The probes didn’t find any malafide intent.
“The penalty is very low and there has been no major stricture passed against the rating companies,” said A.K. Prabhakar, head of research at IDBI Capital Market Services in Mumbai. “Without the overhang of regulatory strictures in connection with the IL&FS default, there’s room for these stocks to rally further.”
Rating companies have faced criticism for missing a number of defaults -- including at Dewan Housing Finance Corp. and Altico Capital India Ltd. -- since the IL&FS collapse. Amid the regulatory investigations, Icra terminated the employment of its managing director and Care sent its CEO on leave before he resigned, raising concern the firms would be stiffly punished.
In its latest Financial Stability Report, published Dec. 27, the Reserve Bank of India raised the issue of “rating shopping,” where a company gets a better rating often within three months of it getting a poorer one that is subsequently withdrawn.
“Sebi has noticed instances where credit rating agencies have provided ‘indicative ratings’ to issuers without entering into written agreements with such issuers,” the central bank noted without naming any companies. “Since such ‘indicative ratings’ are not disclosed by credit rating agencies on their websites, it becomes difficult to identify instances of possible rating shopping.”
Care has surged 37% since the Sebi order and Icra rose 9%.
To contact the reporters on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net;Ronojoy Mazumdar in Mumbai at rmazumdar7@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Anto Antony, Jeanette Rodrigues
©2020 Bloomberg L.P.