Securities and Exchange Board of India (SEBI) on Tuesday directed the credit rating agencies (CRA) to disclose more information pertaining to the liquidity status, among other indicators, of the companies they review.
In a circular, the capital market regulator also mandated the rating companies to disclose any linkage of the reviewed company in regards to external support it has sought for meeting its near-term maturing obligations.
“The press release shall include a specific section on ‘Liquidity’, which shall highlight parameters like liquid investments or cash balances, access to unutilised credit lines, liquidity coverage ratio, adequacy of cash flows for servicing maturing debt obligation,” the circular said.
Also, while carrying out “Monitoring of Repayment Schedules”, rating agencies would have to analyse the deterioration in the liquidity conditions of the issuer or the company and also take into account any asset-liability mismatch.
In order to promote transparency and to enable the market to judge the ratings, SEBI said “the CRA should publish information about the historical average rating transition rates across various rating categories, so that investors can understand the historical performance of the ratings assigned by the CRAs”.
Accordingly, rating agencies would have to publish their average one-year rating transition rate over a five-year period, on their respective website, which shall be calculated as the weighted average of transitions for each rating category, across all static pools in the five-year period.
In addition, the regulator mandated credit rating agencies to “furnish data on sharp rating actions in investment grade rating category to stock exchanges and depositories for disclosure on website on half-yearly basis, within 15 days from the end of the half-year (31st March or 30th September)”.