INVESTIGATING how the IL&FS Group companies were able to retain high credit ratings even as they faced a severe liquidity crunch and ultimately defaulted in September 2018, officials have found evidence pointing to conflict of interest.
Sources confirmed that Brickwork Ratings — an agency promoted by Canara Bank — allegedly gave favourable ratings to debt instruments of IL&FS group companies as its founder director D. Ravishankar allegedly received IL&FS Group’s hospitality in Spain along with his family. This included watching a football match in Madrid in the “IL&FS Box”.
Sources confirmed to The Indian Express that investigating authorities are probing this al-leged nexus and will “take action accordingly”. When contacted, Ravishankar denied any link and said: “We have responded to the authorities and we have said that no favour was taken and there was no influence on ratings.”
On the specific query on whether he along with his family members watched a match in Madrid in the IL&FS Box, Ravishankar was unavailable for comment.
On Wednesday, Care Ratings intimated stock exchanges that its board decided to send its MD and CEO Rajesh Mokashi, on leave, with immediate effect “pending the completion of the examination of anonymous complaint received by the Securities and Exchange Board of India.” On July 1, 2019, the board of ICRA had sent managing director Naresh Takkar on leave with immediate effect.
CARE, ICRA, India Ratings and Brickwork have been the main credit rating agencies (CRAs) for ITNL, IFIN and IL&FS over the last decade.
Meanwhile, in a statement Thursday, IL&FS said it had completed the first phase of forensic audit on these agencies. While IL&FS board appointed Grant Thornton (GT) to undertake the high ratings forensic audit, it said that GT submitted its findings in an interim report. “The audit evaluates the role of CRAs in rating various debt instruments and facilitating excessive borrowings from money markets across Group companies that eventually led to defaults,” said IL&FS.
While the mandate was to audit the role of CRAs and discover any possible wrongdoing in rating IL&FS Group companies during the period of 2008 to 2018, it said that the “report has analyzed several email communications between the erstwhile management and representatives of credit rating agencies during the specified period.”
A scrutiny of Brickwork ratings of IL&FS Group companies shows that the rating agency maintained “AA-” rating for perpetual debt instrument of IFIN till as late as September 12, 2019, when it finally downgraded it to “C”. It downgraded the rating of the instrument from AA+ to AA- on August 17, 2018.
Similarly in case of ITNL, while the rating agency maintained A2+ rating for ITNL’s commercial paper, it downgraded it to A4 on July 24, 2018 and then maintained it all the way till September 24, 2018. In case of ITNL’s NCDs worth Rs 3,550 crore, the rating agency maintained AA+ rating till August 17, 2018 when it downgraded it to AA- and then further downgraded it to BB- on September 12, before assigning it “C” on September 21, 2018.
While AA rating is provided to instruments with high degree of safety regarding timely servicing of financial obligations and that carry low credit risk, instruments with C ratings are considered to have very high risk of default.