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SEBI to Penalise Rating Companies for Failing to Warn Bond Investors of the Crisis Brewing at IL&FS

Professor of Financial Economics and Part-time Value Investor, Transfin.
Feb 11, 2020 6:17 AM 2 min read
Editorial

SEBI to penalise CRA Ltd, India Ratings and Research Pvt. Ltd and Credit Analysis and Research Ltd (CARE) for failing to warn bond investors of crisis brewing at IL&FS.

 

COMPANIES

SEBI to penalise rating companies for failing to warn bond investors of the crisis brewing at IL&FS.

Silence is Compliance

As per sources, the markets regulator, Securities and Exchange Board of India (SEBI), has sent fresh notices to three rating companies - CRA Ltd, India Ratings and Research Pvt. Ltd and Credit Analysis and Research Ltd (CARE) - for failing to warn bond investors of Infrastructure Leasing and Financial Services Ltd (IL&FS) in time about the scam at the shadow lender. 

 

Bigger Picture

IL&FS defaulted on a series of debt obligations, triggering a crisis in the shadow banking sector as banks and mutual funds cut their exposure to non-bank lenders.

 

The move comes after SEBI's Board disapproved of the low penalty of ₹25L ($3m) each imposed on the three rating companies on December 26th.

 

The agencies had assigned IL&FS the highest rating of AAA before the default in September 2018, even though its unit had defaulted in June of that year. [Livemint]

 

SoftBank Group expected to post drop in quarterly profit.

A Bleak House

Japanese technology conglomerate SoftBank is expected to post a slide in profits for the past quarter, further deepening concern about its ability to secure funding for a second Vision Fund.

 

This would also give New York-based activist fund Elliott Management more say in a potential shake-up at SoftBank. Elliott has already amassed a stake of almost $3bn in SoftBank and is now pushing for changes including $20bn in stock buybacks. Furthermore, the emergence of Elliott as a prominent shareholder in SoftBank is likely to highlight the latter's difficulties following its soured bet on office-sharing startup WeWork. [Reuters]

FIN.

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