Sebi slaps Rs 1 crore fine on CARE Ratings in RCom case

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Published: July 27, 2020 7:46 PM

 Sebi found that CARE Ratings had failed to monitor the factors affecting the creditworthiness of RCom in a timely manner, resulting in significant delay in conducting the rating process and downgrading the rating.

In May 2017, CARE Ratings downgraded the ratings assigned to non-convertible debentures (NCDs) issued by RCom to default.

Markets regulator Sebi has imposed a penalty of Rs 1 crore on CARE Ratings in connection with lapses in assigning credit rating to non-convertible debentures of Reliance Communications (RCom). The case relates to default committed by RCom on the repayment of principal amount of Rs 375 crore and interest of Rs 9.7 crore due in February 2017 and March 2017, respectively.

In May 2017, CARE Ratings downgraded the ratings assigned to non-convertible debentures (NCDs) issued by RCom to default. Sebi found that CARE Ratings had failed to monitor the factors affecting the creditworthiness of RCom in a timely manner, resulting in significant delay in conducting the rating process and downgrading the rating.

It further said the rating agency had failed to initiate a review of its earlier ratings assigned to RCom even after the publication of third quarter of FY17 results. The results showed a major decline in cash accruals affecting its credit profile and major development in the telecommunications industry with the entry of Reliance Jio denting the profit margins of all other players in the market, it added.

In addition, CARE Ratings had failed to take steps as prescribed under the norms, when it had not received no-default statement (NDS) for the quarter ended December 31, 2017, from RCom despite its e-mail to the company in January 2017. It had not even followed up with RCom for such NDS despite the same being a crucial document for conducting review of quarterly financials of an entity.

Sebi said the agency did not take into consideration the ratings downgrade of RCom’s debt securities by Fitch and Moody’s for conducting a review of its own ratings. In addition, the regulator noted that CARE Ratings had failed to conduct a review despite being adequately triggered by several factors. It said all happened during the same quarter or just immediately thereafter and the agency waited till May 2017 to conduct its first review since assignment of the earlier rating to RCom.

“Defaults of CARE Ratings Limited constitute contravention…of CRA (credit rating agency) Regulations, which make it liable for penalty,” the Securities and Exchange Board of India (Sebi) said in an order passed on Friday.

Accordingly, the regulator imposed a penalty of Rs 1 crore on CARE Ratings.

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