Ratings Agencies At Fault For Delay In Reliance Communications Downgrade: IiAS’ Anil Singhvi

If the rating agencies can’t handle quick action they should shut shop, said Anil Singhvi.

Pedestrians walk past a Reliance Communications Ltd. retail store in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past a Reliance Communications Ltd. retail store in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Rating agencies, on whom several investors and mutual funds rely for grading the risk levels in corporate debt, are at fault for the delay in downgrading Reliance Communications Ltd.’s debt to default rating, said Anil Singhvi, founder of shareholder advisory firm IiAS. He added that the delay was uncalled for and easily avoidable. Reliance Communications, on the other hand, is probably trying its best to reduce debt levels, according to Singhvi.

“If they [rating agencies] can’t handle this they should shut shop,” Singhvi said in a telephone interview to BloombergQuint.

Echoing Singhvi’s tone, Independent Market Analyst Hemendra Hazari questioned the very existence of the ratings agencies if they are unable to do their jobs, which is downgrade before a default happens and not vice versa.

What is their [rating agencies] use to the market? What is the use to the holders of debt? What is the use of their very existence?”
Hemendra Hazari, Independent Market Analyst

Ratings Agencies On Delay

Credit Analysis & Research Ltd. (CARE) and ICRA Ltd. downgraded the Anil Ambani-led company’s debt to ‘default’ after it delayed on repayments earlier this year. The delay in debt obligations came as a result of “significant stress on its cash flows and high level of debt”, according to a statement by CARE Ratings. ICRA, the Indian subsidiary of Moody’s Investor Service, followed suit.

Ratings agencies maintain that the lack of information from the company and its debenture trustee, Axis Trustee Services Ltd. led to the delay.

Lack of clarity from the company and debenture trustees led to the delay in ratings downgrade.
CARE Ratings Spokesperson

Axis Bank, however, disagrees. “For the debenture issues in which we are acting as Debenture Trustee for Reliance Communications, we have not received any default advice from the debenture holders, either in payment of interest or redemption of debentures,” the bank’s spokesperson said. “Hence, sharing information with CRAs (credit rating agencies) does not arise.”