The legal tussle between Kolkata-based Srei Infrastructure Finance and India Ratings (formerly Fitch Ratings India) over the rating agency’s move to downgrade the company may not die soon.
After a go-ahead by the Calcutta High Court and market regulator, Securities and Exchange Board of India (Sebi), India Ratings today put in public domain a downgrade of ratings of Srei Infrastructure Finance. The company said it will again approach Calcutta High Court and accused India Ratings of acting in haste and basing ratings on ‘inaccurate conjecture’.
India Ratings cut both long-term and short-term ratings of the company by a notch, but still these remain within investment grade. While the long term rating of the company was downgraded to IND A + from IND AA-, short term rating was reduced to IND A1 from IND A1+. The outlook on long-term rating was negative at the time of the downgrade.
| HOW EVENTS UNFOLDED |
March 19:
March 20: |
- Srei gets stay order from Calcutta High Court on publishing downgrades
September 17:
- Calcutta HC allows Fitch Ratings to go ahead with its report on downgrades, subject to satisfaction by Sebi
October 5:
- Sebi tells India Ratings that its rating action generally conforms to the Sebi (Credit Rating Agencies) Regulatoins, 1999
October 6:
- India Ratings publishes its report on ratings downgrade of Srei Infra Finance
- Srei Infra Finance says rating action is in haste and based on inaccurate conjecture
- Srei Infra Finance to represent facts to Calcutta High Court again
The rating downgrade was originally done way back on March 19 this year, but was withheld from public domain after Srei Infrastructure Finance got a stay order from Calcutta High Court. Meanwhile, Srei Infrastructure Finance terminated its contract on rating with India Ratings.
Later in September, the Calcutta High Court allowed India Ratings to go ahead with releasing the downgrade, subject to satisfaction by Sebi that the rating agency has adhered to norms and regulations.
Sebi had yesterday informed India Ratings that the rating action by India Ratings is generally conforming to the Sebi (Credit Rating Agencies) Regulations, 1999, the rating agency officials said.
As such, the company put its ratings in public domain.
“As per the Honourable High Court’s order, India Ratings is no longer constrained in publishing the decision of the rating committee held on 19 March 2012,” the rating agency said in a statement here.
The statement said the rating downgrade reflected elevated credit risk in Srei Infrastructure Finance loans due to its largely unseasoned portfolio resulting from its continuous high loan growth, especially in the financial year ended March 2011 (FY11) and the first nine months of 2011-12.
“A large proportion of Srei Infrastructure Finance equity is locked up in unlisted investments, leaving the company with limited capital to cushion losses from elevated loans in the event of stress,” it said.
The downgrade of the short-term rating also factors in Srei Infra's higher reliance on short-term and working capital funding, compared with 'IND A1+'- rated non-banking finance companies, for financing infrastructure loans, the statement said. The rating agency said it is unable to comment on the present rating level given that no information has been shared by Srei Infra, post the last review.
As such, it recommended investor caution, given that the negative outlook implies potential for a further rating downgrade.
Shashi Bhushan Tiwari, Chief Operating Officer, Srei Infrastructure Finance Limited, told Business Standard, “Fitch has acted in haste and their view is based on inaccurate conjecture. We are going to represent this matter to the Hon'ble High Court,Calcutta”.
On the other hand, Ananda Bhoumik, senior director with India Ratings, said, “We are pleased that our independence as a rating agency is upheld. We believe it is very positive for the markets and for investors.”
The company finances infrastructure projects, infrastructure development, large infrastructure equipment, and provides advisory services in the infrastructure financing space. The company is also joint-owner, along with BNP Paribas Leasing Solutions, of Srei Equipment Finance, India's leading equipment finance company.
