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Markets regulator Sebi on Tuesday issued norms for enhanced disclosures by credit rating agencies (CRAs).
While CRAs are required to monitor and analyse the relevant factors that affect the creditworthiness of an issuer and discuss the same in the rating notes considered by the rating committee for assignment of ratings, such relevant factors may also be suitably incorporated in the press release regarding the rating action, Sebi said.
CRAs would now be required to furnish information whether the rating is factoring in support from a parent, group or government, with an expectation of infusion of funds towards timely debt servicing.
They are required to name of such entities, along with rationale for such expectation.
When subsidiaries or group companies are consolidated to arrive at a rating, list of all such companies, along with the extent (e.g.
full, proportionate or moderate) and rationale of consolidation, will be required to provide by CRAs.
Press Release of CRAs would now include a specific section on “liquidity”, which will highlight parameters like liquid investments or cash balances, access to unutilised credit liquidity coverage ratio, adequacy of cash flows for servicing maturing debt obligation, etc.
CRAs shall also disclose any linkage to external support for meeting near term maturing obligations.
Sebi said that all CRA would require furnish data on sharp rating actions in investment grade rating category, to stock exchanges and depositories for disclosure on website on half-yearly basis, within 15 days from the end of the half-year.
Sebi said CRAs would require to treat sharp deviations in bond spreads of debt instruments vis-à-vis relevant benchmark yield as a material event.
“While carrying out “Monitoring of Repayment Schedules”, CRAs shall analyse the deterioration in the liquidity conditions of the issuer and also take into account any asset-liability mismatch,” it said.
In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA should publish information about the historical average rating transition rates across various rating categories, so that investors can understand the historical performance of the ratings assigned by the CRAs, Sebi said.
WIth this in mind, CRAs will be required to publish their average one-year rating transition rate over a 5-year period, on their respective websites, which will be calculated as the weighted average of transitions for each rating category, across all static pools in the 5-year period, the market regulator said.
