IL&FS directors had tried to keep many ratings in "private", push rating officials to softens ratings, even influenced them to change the language in rating rational and occasionally inflated numbers in fishing for better ratings. The 105-page Grant Thornton (GT) report accessed by ET details out anomalies, issues of professional compromises and corporate governance surrounding the CRAs who rated IL&FS in the last ten years.
The role of five CRAs- CARE, Icra, India Ratings , Brickwork and CRISIL have been reviewed by GT which assigned a total of 429 ratings during the period between 2011 and 2019.
Various enforcement agencies like the Enforcement Directorate and the Serious Fraud Investigation Office (SFIO) are probing the books of IL&FS and its subsidiary.
The development comes close to the heels of the CARE Ratings, MD & CEO, Rajesh Mokashi and Managing Director and Group CEO of ICRA Naresh Takkar sent on leave after anonymous complaint received by Sebi.
EFFORTS TO KEEP THE RATINGS `PRIVATE’
A Grant Thornton report has observed strategies applied by IL&FS former key employees to avoid a downgrade in credit ratings. In cases if the favorable ratings were not obtained, the former employees of IL&FS were paying huge sums to keep ratings private.
An email dated 30 January 2018 was sent by Mic Kang -representative of Moodys to Dilip Bhatia providing him with the rating letter for ITNL. This was further shared by Dilip Bhatia with the KMPs for IL&FS, where he suggested that rating from Moodys should be kept in private domain and requested Anita Ferreira to check the cost for the same. Based on the trail email, it was noted that by paying additional $68000 (Rs 47 lakhs) to Moodys ratings can be kept in private domain.
“The draft report commissioned by the IL&FS Board on credit rating agencies is wrong with respect to Moody’s,” said Moody’s spokesperson in an email. “To be clear, Moody’s has never requested, accepted or in any way agreed to receive an additional fee in exchange for keeping a rating in the “private domain,” as the draft report inaccurately claims. The fee for any particular rating is the same regardless of whether the rating is public or private, and ongoing monitoring of the rating is subject to a separate annual fee.”
Moody’s is in the process of alerting the company to the inaccuracies relating to Moody’s in the draft report and expect the report to be corrected accordingly.
The report says that given the liquidity stress in ITNL, it is unusual to note that significant amount $68000 was offered to Moodys to keep the ratings of ITNL in private domain. This amount was paid over and above $91,000 upfront fees paid for rating with one year validity.
In 2013, a mail was sent by Ajay Menon to Sujoy Das informing him that an investor of commercial papers had requested ITNL to get credit ratings from Brickworks. Further, in the trail email Sujoy Das informs Arun Saha about the proposal of Ajay Menon and states that ratings will be kept private if highest short-term rating is not given by Brickworks.
INFLATE FORECAST
An email communication between the erstwhile IFIN director and a senior employee at ITNL indicates that inflated projections were submitted to CRISIL in order to get good ratings. “...In an email dated December 17, 2010, it appears that Menon was informing Karunakaran Ramchand (erstwhile director of ITNL) about the projected profit after tax (PAT) for FY-2010–2011 would be approximately Rs.240 crores. However, the same was indicated as Rs. 325crs for the purpose of rating from CRISIL,”the report states. “Thus, the email appears to indicate that inflated/better projections were submitted to CRISIL in order to get good ratings,”it adds.
IL&FS TOP BRASS TRIED TO DELAY, SOFTEN, `EDIT’ RATING, RATIONALE
The report opines that if the then key employees of IL&FS became aware that ratings were not going to be favorable, they then either delayed the process of rating surveillance or delayed the publication of the rating on the public domain. In certain cases ‘intentionally incorrect or incomplete information’ was being provided to the CRAs s to avoid rating downgrade;
In another instance, the report states, “..We identified an email dated December 3,2014 which sent by Sujoy Das to Sushil Khandelwal in which he appears to suggest that the conclusion of the rating rationale provided by the India Ratings should be softened/less harsh. Further,he also suggests the wording for the conclusions should be “may result in a negative outlook or downgrade”. Our public domain searches indicated that the ratings had the exact same wording as suggested by SujoyDas,” the report states. Thus,it indicates that IL&FS may have been able to potentially influence the wordings/rationale of India Ratings, its concludes.
RATING SHOPPING
Citing how the alleged accused IFIN directors used pressure to get favourable ratings, the GT report cites an email dated August 12, 2008 sent by Arun Saha to Ravi Parthasarathy, “...where it was noted that ICRA committee had decided to not issue “AAA” rating for the debt instruments of IFIN. This step was ICRA was not agreeable to Ramesh Bawa. Further, in the trail email Parthasarathy suggests that they can approach CARE, FITCH as well as CRISIL for the ratings instead of ICRA. Thus, the email trail suggest that key former employees of IL&FS used to approach other rating agencies if they did not get the desired ratings,” the communication reads.
MCA MULLING ON A FRAMEWORK FOR CRAs.
Sources says the ministry of corporate affairs (MCA) may write to the regulators to tighten the framework so as to regulate the CRAs. Credit rating agencies are jointly regulated by both Sebi and RBI as these firms rate bank loans and NBFCs, which constitute 70 per cent of their business.
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