POLICY ON ISSUER NOT COOPERATING AND SURVIELLANCE/REVIEW OF EXISTING RATING

Guidelines on What Constitutes Non-cooperation by clients

Once the assigned rating is accepted by the rated entity, it becomes the responsibility of Infomerics to carry out monitoring of the rating until the outstanding under the rated instrument and/or facilities is completely paid off or until the investor and/or lender agrees for withdrawal of the rating at the instance of the issuer and/or borrower. Such monitoring by Infomerics is ongoing and may be onsite or offsite or a combination of both. As a matter of practice & prudence, Infomerics seeks to monitor the performance of the issuer on the basis of monthly No Default Statements (NDS), available market information and quarterly operational data/results declared by the issuer from time to time. Further as per SEBI guidelines, Infomerics undertake comprehensive annual surveillance of the rated instruments based on the latest audited financial statements and performance in the preceding period of 12 months. Surveillance/review of assigned ratings can be carried out at any time after the acceptance. However, surveillance is mandatory within 15 months from the date of initial press release/last press release for Bank Loan Ratings. Similarly, the annual surveillance of the NCDs (including issue of PR) is mandatorily completed within 12 months from the date of last press release. The Mandate signed by the issuer/borrower with Infomerics clearly states about the review of the rating and the fee payable at the time of annual surveillance. For the purpose of annual surveillance or for any periodical or even for any ad-hoc review, Infomerics expects the issuer/borrower to submit certain information to Infomerics which are otherwise not available in the public domain. Infomerics also expects that the issuer/borrower shall pay to Infomerics the contracted annual surveillance fee. Infomerics also expects the borrower to submit the monthly No Default Statement (NDS) without fail as long as the rating is live (same applicable for Ratings with INC status). However, if, despite follow up, any issuer/borrower fails to provide all or any of the following information

(i) with respect to unaudited quarterly for listed cos or audited yearly results within specified timelines (for all entities including unlisted firms)
(ii) Current and past operational details including capex plans
(iii) debt obligations and repayment details
(iv) NDS for three consecutive months (unless regularity of debt payments is confirmed by the
bankers concerned), (OR)
(v) fails to pay annual surveillance fee when due then, Infomerics would consider such circumstances as non-cooperation.

Ratings may be moved to INC category and PR to be issued within a period of 7 days upon 3 consecutive months of non-submission of NDS (unless regularity of debt payments is confirmed by the bankers concerned). Infomerics may, if circumstances so warrant, consider migrating to INC even before the expiry of three consecutive months of non-receipt of NDS.

Process to be followed in case client is not co-operating

In case a client is not cooperating, Infomerics will make client aware of actions likely to be taken by Infomerics in case of continued non-cooperation. At least 3 mails/letters will be sent by the rating team (seeking information) / BD team (for fee) (whichever is applicable) before reviewing the case in the rating committee. The rating note put up to the rating committee would also contain analysis based on information Infomerics could obtain from the public domain/other sources such as
1. Quarterly/Annual Results from exchanges/ROC/MCA
2. Banker feedback as per contact details
3. Google search
4. Other sources considered reliable by Infomerics.
The Rating committee, after considering all the factors shall consider assigning a rating with suffix INC.

In the rating letter and press release in INC cases, the credit rating symbol shall be accompanied by the suffix “ISSUER NOT COOPERATING*”in the same font size. The suffix shall be explained below and shall read as ‘Issuer did not cooperate; based on best available information’.

Review of Ratings in the INC Category

Ratings in the INC category have to be reviewed with the same periodicity that is stipulated for other cooperating clients (12/15 months limit between press releases). Letters seeking information shall be sent to the client and in the absence of cooperation from client, the rating is carried out on the basis of publicly available information as listed above. Analysis of Information Risk for carrying out a rating exercise, Infomerics relies on information from the client as well as various sources it considers reliable. The degree of ‘information risk’ for an entity would vary depending on availability of various types of information used for determining credit risk of a borrower, such as
(a) Receipt of NDS regularly or availability of banker feedback
(b) Receipt of quarterly results within timelines, especially for listed entities
(c) Receipt of annual results for entities (including unlisted) within timelines
(d) Availability of information with regards to operational results, capex plans, projects under implementation and liquidity position (e.g. cc utilization, cash available etc.) on a periodic basis
(e) Availability of projections. Even in the absence of availability of projections from rated entity, in case of greater ease of drawing up projections, the information risk would be considered lower. For example, in single product companies or companies with fixed price contracts say in the infrastructure sector are more amenable to drawing up projections independent of the entity concerned.
(f) Ease of due diligence – cooperation extended by lenders / investors in providing information regarding debt servicing would be a factor while assessing information risk.

If the issuer stops cooperating, ratings are assigned based on best available information. The rating framework for INC cases is therefore based on the risk perception because of non-availability of crucial information and the assessment of what could go wrong.
Rating action in INC cases would depend on the perceived information risk based on the above framework, which would be deliberated by the Rating Committee which would take a final rating decision.


SEBI Guidelines of January 3, 2020

In order to further strengthen the rating process of the CRAs with regard to ‘Issuer not cooperating’ (INC) ratings, SEBI has issued directions vide circular SEBI/HO/MIRSD/ CRADT/CIR/P/2020/2 January 03, 2020. The circular states that if an issuer has outstanding ratings as non-cooperative for more than 6 months, then the CRA shall downgrade the rating assigned to the instrument of such issuer to non-investment grade with INC status. If non-cooperation by the issuer continues for further six months from the date of downgrade to non-investment grade, no CRA shall assign any new ratings to such issuer until the issuer resumes cooperation or the rating is withdrawn (w.e.f. from July, 2020). In order to comply with aforesaid guidelines, Infomerics shall be conducting review of all INC ratings wherever the client is not cooperating with all the CRAs (wherever a rating is outstanding)4 and place the cases before the rating committees to downgrade investment grade ratings to non-investment grade within the above stipulated period.

To comply with the 12 month rule of SEBI, in case a new client which has INC ratings from all CRAs (wherever ratings are outstanding), BD teams have been instructed not to take up the assignment.

Migration from INC Status
An issuer may be migrated from INC status provided it fulfils the following requirements:
1. Payment of Annual Surveillance fee
2. Submission of NDS
3. Submission of operating and financial data sought by Infomerics

Last Updated on May 2024

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