Shares in Moody's India unit fall after CEO placed on leave amid probe

ICRA

02/07/2019 14:26

By Abhirup Roy
    MUMBAI, July 2 (Reuters) - Shares in ICRA Ltd  ICRA.NS , the
Indian unit of Moody's Investors Service  MCO.N , fell on
Tuesday after the credit rating agency sent its chief executive
officer on leave because of a probe into a ratings decision it
took last year.
    ICRA took the action against Naresh Takkar after concerns
raised anonymously were forwarded to the company by India's
market regulator, the Securities and Exchange Board of India
(SEBI), the rating agency said in a stock exchange filing on
Monday.  urn:newsml:reuters.com:*:nL4N242337
    ICRA said in May it had appointed external experts to probe
the anonymous complaint concerning the credit rating it assigned
to one of its customers and its units.
    Indian media reported the complaint was about interference
by the rating firm's top executives in assigning top investment
grade ratings to Infrastructure Leasing and Financial Services
Ltd (IL&FS) and its subsidiaries last year. 
    IL&FS, which provides infrastructure financing, has
defaulted on a series of debts, its management has been removed
and the Indian government has taken control of its management
and board. 
    Takkar and an ICRA spokeswoman both declined to comment
beyond Monday's announcement. 
    Apart from ICRA, two of India's biggest and most prominent
agencies - India Ratings & Research, which is owned by Fitch
Ratings, and CARE Ratings - had granted IL&FS AAA ratings,
indicating the highest level of creditworthiness. 
    Those ratings were still in place when its subsidiary IL&FS
Transportation Networks  ILFT.NS  defaulted in June last year.
IL&FS was first downgraded only by a notch in mid-August and
then in just one month all three agencies slashed the rating to 
D, deep in "junk" debt territory. 
    The string of defaults that followed triggered fears about
contagion in the financial sector, spooking both equity and debt
markets and prompting the government to seize control.
    Shares in ICRA closed down 2.5 percent at 3,081.30 rupees
after touching a low of 3,000 rupees earlier in the day.
    
    PRESSURE ON RATING INDUSTRY
    ICRA's decision to put Takkar on leave is the latest sign of
the pressure being put on credit rating firms by SEBI, which has
been increasingly concerned about how large indebted companies
have earned strong credit ratings, only to have them downgraded
overnight.
    SEBI Chairman Ajay Tyagi said last Thursday that SEBI had
initiated adjudication proceedings against some credit rating
agencies and was contemplating starting proceedings against some
others. He didn't name the firms concerned.
    SEBI has been tightening disclosure regulations for rating
agencies to boost transparency and accountability and has made
it mandatory for them to closely monitor whether issuers are
meeting their debt obligations. 
    It has also curbed cross-holdings between agencies to reduce
conflicts of interest.
    Last month, SEBI directed ratings agencies to formulate a
uniform benchmark for the "probability of default" for each
rating category and asked them to disclose in their press
release factors to which a rating is sensitive and explain
operating and financial performance that could trigger a rating
change.
    Tyagi said last Thursday that credit rating agencies were
"much more responsive" in the last 7-8 months and were "quite
active" and "responding well to the challenges."

 (Reporting by Abhirup Roy; Editing by Martin Howell and Mark
Potter)
 ((abhirup.roy@thomsonreuters.com; + 91 22 6180 7067; Reuters
Messaging: abhirup.roy.thomsonreuters.com@reuters.net))