Apart from considering various measures such as different or modified rating symbol for non-principal protected equity-linked debentures to highlight the embedded non-credit risks, rating agency Crisil is also considering to discontinue their ratings.
So far, Crisil has rated three such debentures and all of them carry ?AAA? ratings. Currently, all outstanding ratings of such debentures are expected to remain under surveillance of Crisil.
Since there are prominent non-credit risks that can impact returns on these instruments, Crisil rates them by using an ?r? as suffix to alert the investors on the risk factors. To rule out the investors? misinterpretation on ratings of such instruments, Crisil has thus decided to reconsider assigning ratings to them.
Equity-linked debentures are a relatively new debt instruments in India. The returns on an investment in such instruments are linked to the equity markets, and could be based on the performance of an external variable such as an index, a basket of shares or even an individual share.
Roopa Kudva, managing director and CEO Crisil said, ?We are committed to supporting market development with our analytics and rating products. However, for highly complex products, adequate investor education is a key pillar of successful market development. The lack of investor awareness can hurt long-term market growth and confidence. We propose to have a dialogue with market participants including issuers, investors and distributors, to better understand how principal protected equity linked debentures are being sold, and the investor education efforts for this product, before arriving at a final decision.?