Rating agencies knew of stress at India's IL&FS, but gave good ratings - audit

IL&FS Transportation Networks

20/07/2019 11:33

* IL&FS audit by Grant Thornton shows lapses by rating
agencies
    * Rating agencies knew of problems, gave good ratings-report
    * "Certain favors/gifts" possible reason for good
ratings-report
    * Favours, gifts included tickets to Real Madrid game and
gadgets
    * Report raises queries about reliability of other company
ratings

    By Abhirup Roy and Aditya Kalra
    MUMBAI/NEW DELHI, July 20 (Reuters) - Credit rating agencies
for years assigned high ratings to India's Infrastructure
Leasing & Financial Services (IL&FS) and its group companies
despite its deteriorating financial health, according to a
special audit conducted by Grant Thornton India.
    Audit firm Grant Thornton was appointed by IL&FS' new board
to conduct the review following the government's decision to
take charge of the group after its defaults on debt obligations
sparked fears of financial contagion.  urn:newsml:reuters.com:*:nL4N1WA27S urn:newsml:reuters.com:*:nL3N1W804S 
    Grant Thornton reviewed the role of five credit rating
agencies -- Fitch group's India Ratings and Research, Indian
affiliate of Moody's, ICRA, Standard & Poor's local unit Crisil,
CARE Ratings and Brickwork Ratings India -- which assigned 429
ratings to various IL&FS financial instruments in recent years.
    In a 105-page report, reviewed by Reuters on Saturday, Grant
Thornton said the agencies raised multiple concerns on IL&FS
group's financial stress and liquidity position between June
2012 and June 2018, but continued to assign "consistently high"
ratings which were only downgraded or reversed last year.
    "Various strategies deployed by the then key officials of
IL&FS group and certain favours/gifts provided to rating agency
officials suggest the possible reasons for consistent good
ratings provided to IL&FS group," said Grant Thornton in its
report that detailed gifts or favours such as smartwatches and
tickets to overseas games. 
    IL&FS declined to comment. India Ratings said the Grant
Thornton report is based on "partial and selective source
material", adding "our ratings were based on robust and
transparent analysis of relevant information".
    Brickwork said it did not assign the highest ratings to
IL&FS "because it follows robust, transparent and consistent
rating methodology" and its actions were not influenced by any
commercial pressures or rating withdrawal requests.
    ICRA, Crisil and CARE did not immediately respond to a
request for comment.    
    The IL&FS crisis that started last year has sparked a series
of federal probes into the firm's operations, but Grant
Thornton's report raises questions on whether rating agencies
have misled investors about the stress levels at other companies
in India's shadow banking sector, where new fractures are
emerging.
    Dewan Housing Finance Corp  DWNH.NS , another top firm in
the sector, last week warned its financial situation was dire,
raising more worries about the sector's health and signalling
the crisis was far from over.  urn:newsml:reuters.com:*:nL8N24E0II

 (Reporting by Abhirup Roy and Aditya Kalra; Editing by Euan
Rocha and Stephen Powell)
 ((aditya.kalra@thomsonreuters.com; +91-011-49548021; Reuters
Messaging: aditya.kalra.thomsonreuters.com@reuters.net (Twitter:
@adityakalra))