IL&FS way: If you can’t change the rating, change the agency

New Delhi, July 21, 2019-

As several instances of collusion between crisis-hit IL&FS and its credit rating agencies have surfaced from the forensic audit of the lending group, the Grant Thornton report also shows that at times when rating agencies informed the company about according low or negative ratings, key IL&FS management personnel would approach other agencies in search of desired ratings.

Approaching other agencies was among the various methods of receiving favourable rating assessments apart from offering lavish favours in lieu of fake healthy ratings, urging the rating announcement be delayed and keeping the rating in private domain.

In its report, Grant Thornton said that in an e-mail dated August 12, 2008, then IL&FS Financial Services (IFIN) Joint Director Arun K. Saha said that ICRA committee had decided to not issue “AAA” rating for the debt instruments of IFIN.

The report noted that ICRA’s decision was “not agreeable” to then IFIN MD and CEO Ramesh Bawa.

The e-mail trail suggests that the key employees of IL&FS used to approach other rating agencies if they did not get the desired ratings, the audit report noted.

In a mail to Saha, with copies marked to then IL&FS Chairman Ravi Parthasarthy and Vice Chairman Hari Sankaran among others, Bawa said: “I think, we should not compromise accepting any lower rating than ‘AAA’ for IFIN”, to which Saha said that they need to work out among rating agencies.

Further, in the e-mail trail, Parthasarthy suggested that they can approach other agencies like CARE, Fitch and Crisil for the ratings instead of ICRA.

Parthasarthy’s mail to all the officials concerned said: “We don’t have to go to ICRA at all. For the time being, CARE and Fitch can be approached. I will also meet Ravimohan one of these days and initiate a dialogue with Crisil.”

In another instance, the management of group company IL&FS Transportation Networks Ltd (ITNL) wanted to remove CARE as its rating agency on the grounds that it downgraded the ratings of Jharkhand Road Projects Implementation Company Ltd (JRPICL) non-convertible debentures by two notches, although India Ratings and Crisil had maintained their ratings at AA(SO).

In an e-mail dated October 15, 2018 senior ITNL executive Madan Mohan requested the removal of CARE as the rating agencies of JRPICL “since two rating agencies are sufficient from a regulatory standpoint”.

At times when they did not get favourable ratings, IL&FS officials pressurised the rating agencies and said that the company may withdraw its rating request.

Grant Thornton’s review also identified an e-mail dated July 16, 2009 where IL&FS official K.V. Sawant informed Saha that he is in talks with Brickwork Ratings to obtain a rating from them. In another mail, he noted that Brickwork was not ready to assign the desired “AAA” rating to the non-convertible debentures worth Rs 400 crore.

“I told him that, we may withdraw our rating request,” Sawant said in a mail dated July 27, 2009 to Saha among others.  (Agency)

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