Capital markets regulator Sebi is evolving a mechanism to improve time and frequency of communication between credit agencies and debenture trustees with respect to changes in debt instrument ratings of listed firms, chairman UK Sinha said.
“There is no institutional mechanism for a dialogue between credit rating agencies and debenture trustee. We have started working on it now,” Sinha said while speaking at the Icra’s 25th anniversary celebrations.
He said this move would protect investor interest as investors tend to suffer by not getting information with respect to changes in rating of debt instruments within the right time. Rating agencies will be asked to give clear reasons if they choose to withdraw their rating on a company, he added.
“For instance, we have come across instances where credit rating of a company was suspended due to non-payment of fees. On such occasions, credit rating agencies should inform investors the reasons for suspension,” Sinha said.
The debate to regulate rating agencies was sparked by a sharp cut in the ratings of Amtek Auto in July 2015 which compelled JP Morgan AMC to restrict redemptions for two of its funds that had exposure to Amtek. Sources told FE that the new norms for rating firms may also mandate rating agencies to provide additional annual disclosures stating that there is no conflict of interest between their rating business and other business verticals.
Commenting on the volatility prevailing in the stock markets, Sinha said concerns over the slowdown in China have posed new challenge for India as it would hinder the high growth path of the country. Sinha, however, added that some government policies could help India continue its high growth.
The Shanghai markets have corrected sharply since January 4 as Shanghai Composite, the benchmark index of Chinese markets, crashed more than 18% since.
The correction was triggered by poor December Caixin Purchasing Managers Index data of China. Shanghai markets have lost more than 16% in since then. The impact of this crash was felt across Asian markets as Hang Seng (Hong Kong) declined by 10.92% while South Korea’s Kospi declined 4.2 %. Back home, Sensex has lost 6.3% since January 4.