If unfavourable, IL&FS execs conspired to keep ratings private

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Published: July 23, 2019 3:01 AM

India Ratings did not respond to a query from FE till the time of going to the press. Meanwhile, rating agencies responded to the draft report.

India Ratings did not respond to a query from FE till the time of going to the press. Meanwhile, rating agencies responded to the draft report

The interim forensic audit report by Grant Thornton, which was assigned by the government-appointed IL&FS board, has revealed a complex nexus between key executives of the scam-tainted firm and credit rating agencies (CRAs), where employees conspired to keep ratings private when they were not favourable.

Grant Thornton, which reviewed ratings provided by various CRAs to IL&FS group companies, pointed out a January 2018 mail from Dilip Bhatia (IL&FS Transportation Network (ITNL) to key management personnel (KMPs) suggesting that rating from Moody’s should be kept private.

“We identified an email dated January 30, 2018, which was sent by Mic Kang (representative of Moody’s) to Bhatia providing him with the rating letter for ITNL. This was further shared by Bhatia with the KMPs for IL&FS, where he suggested that rating from Moody’s should be kept in private domain and requested Anita Ferreira (IL&FS employee) to check cost for the same,” the report, which was seen by FE, revealed.

It further said, “Based on the trail email, it was noted that by paying additional $68,000 (around `47 lakh) to Moody’s, ratings can be kept in the private domain. This was potentially agreed by Bhatia. Thus, given the liquidity stress in ITNL, it is unusual to note that significant amount, $68,000, was offered to Moody’s to keep the ratings of ITNL in private domain.”

When contacted, a spokesperson for Moody’s said, “The draft report commissioned by IL&FS board on credit rating agencies is wrong with respect to Moody’s. To be clear, Moody’s has never requested, accepted or in any way agreed to receive an additional fee in exchange for keeping a rating in the private domain, as the draft report inaccurately claims.”

On the issue of keeping the rating private, he said, “The fee for any particular rating is the same regardless of whether the rating is public or private and ongoing monitoring of the rating is subject to a separate annual fee. We have alerted the company to the inaccuracies relating to Moody’s in the draft report and expect the report to be corrected accordingly.”

Industry sources pointed out that issuers around the world routinely seek private ratings from rating agencies, but this practice is not allowed in India.

The draft report also claimed that the mail trail reveals that India Ratings suggested that IL&FS should go for private rating. “We identified an email dated January 3, 2014, which was sent by Arun Saha (former joint director of IFIN) mentioning that Kishore Gandhi (chief credit officer of India Ratings) had suggested that IL&FS should go for private rating which can be shared with bankers for certain negotiations. This was further agreed by Sunil Wadhwa where he suggests that based on the outcome it can be decided if the ratings are required to be shared with bankers or not,” the report revealed.

“Thus, it appears that potential strategy to keep ratings private was suggested by India Ratings which was agreed by the key former employees of IL&FS,” it claimed.

India Ratings did not respond to a query from FE till the time of going to the press. Meanwhile, rating agencies responded to the draft report. Crisil said on Monday it has never rated IL&FS and IFIN or any debt issued by these companies.

“Way back in 2011, Crisil had assigned ‘CRISIL A/Stable/CRISIL A1’ rating to the bank loan facilities of ITNL. As per the rating definitions standardised by Sebi, the ‘A’ category refers to ‘adequate safety’. The rating was withdrawn in July 2016 and since then, Crisil has had no outstanding rating on ITNL either,” it added.

At present, the agency has ratings on two road annuity project special purpose vehicles – North Karnataka Expressway and Jharkhand Road Projects Implementation Company – that are sponsored by ITNL. Crisil has no other rating outstanding on any other subsidiary – direct or step down – of IL&FS.

Care Ratings too came out with a clarification on Monday. It said the report relating to linking of ratings assigned by Care to various entities in IL&FS group with the communication within IL&FS Group entities should be read with caution as it misses “some rudimentary elements” of the process of credit rating.

“Grant Thornton Report should have understood the details of the rating mechanism before putting out such a report which presents Care Ratings in unfavourable light. Grant Thornton had never approached Care Ratings for any clarification in this regard,” it said.

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