Enhanced disclosure requirements for Credit Rating Agencies

SEBI vide its circular dated 13 November 2018 has tightened the norms for Credit Rating Agencies (CRAs) by enhancing the levels of disclosures required to be made by the CRAs under the SEBI (Credit Rating Agencies) Regulations, 1999 (CRA Regulations). As per the recent circular, the following changes have been brought about:

  1. Under an earlier circular dated 1 November 2016, SEBI had prescribed the standard format for press releases put out by CRAs regarding rating action. Now, specific disclosures must be made in the press release;
    • with respect to rating factors where support from a parent/group/government entity is expected, the name of such entities and the rationale for such expectation to be mentioned.
    • when subsidiaries or group companies are consolidated to arrive at a rating, the names of all such companies, along with the extent of consolidation and rationale for the same to be disclosed.
  2. The above-mentioned press release must also contain a specific section on ‘Liquidity’ with parameters like liquid investments or cash balances, access to unutilised credit lines, liquidity coverage ratio, adequacy of cash flows for servicing maturing debt obligation, etc.
  3. Disclosure of any linkage to external-support for meeting near term maturing obligations must also be made by CRAs.
  4. CRAs may review their rating criteria with regard to assessment of holding companies and subsidiaries in terms of their inter-linkages, holding company’s liquidity, financial flexibility and support to the subsidiaries, etc.
  5. In monitoring of repayment schedules, CRAs to analyse the deterioration in the liquidity conditions of the issuer and also take into account any asset-liability mismatch.
  6. CRAs may treat sharp deviations in bond spreads of debt instruments vis-à-vis relevant benchmark yield as a material event.
  7. CRAs to publish their average one-year rating transition rate over a 5-year period, on their respective websites, calculated as the weighted average of transitions for each rating category, across all static pools in the 5-year period. This shall be adhered during the half-yearly internal audit of the CRAs under the CRA Regulations.
  8. CRAs to 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 (31st March/ 30th September).

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