TOP credit rating agencies not only provided IL&FS executives with advance rating reports, they allegedly allowed them to influence these ratings. In some cases, they even went to the extent of letting IL&FS officials re-write portions of their reports before these were made public. IL&FS executives discussed payments to keep negative reports in the private domain; agencies initially didn t give high ratings to IL&FS firms in the absence of strong credentials but then, inexplicably, upgraded them.
These revelations are at the heart of a scathing indictment of top agencies in a draft forensic report on alleged wrongdoing as IL&FS slipped into default.
The report, prepared by tax and advisory firm Grant Thornton and commissioned by the new IL&FS board, said:
Although Credit Rating Agencies had concerns/issues with operations of IL&FS Group (including potential stress and liquidity indicators) during the period June 2012 to June 2018, the ratings assigned by them were consistently high and the same were reversed/downgraded only post June/July 2018 (barely months before the default in September). Quoting internal mails, the report flags how IL&FS top executives allegedly influenced ratings.
The report also highlights conflict of interest in one case. For example, IL&FS Group companies held between 2-9 per cent stake in CARE Ratings between 2006 and 2013 and CARE provided ratings to several IL&FS companies between 2008 and 2018.
Consider key examples of the manner in which IL&FS allegedly influenced ratings by ICRA, CARE, Brickwork, India Ratings and Moody s, as per the report:
-The report says that Arun Saha (CEO and Jt. MD of IL&FS Ltd) emailed Ravi Parthasarathy (Chairman, IL&FS) on March 18, 2016 in which Saha appears to edit/change the wording of the draft rationale sent by India Ratings. The final rating that was released was toned down from outlook changing to negative or a rating downgrade to outlook revised to negative .
-In April 2016, an ICRA executive emailed an IL&FS official asking her to verify the edited rating report. Please let us now if there are any other changes required from your end, the ICRA executive wrote. A trailing email shows that the edited ICRA draft is based exactly on IL&FS suggestions.
Editorial | Not at any rate
-On March 27, 2017, another ICRA executive shared their rating rationale for IL&FS group companhy ITNL with an executive of IL&FS Financial Services. Three days later on March 30, another IL&FS executive emailed ICRA flagging modifications and edits.
-On December 3, 2014, an executive of IL&FS wrote a mail to his colleague suggesting a change in the conclusion of a ratings rationale of India Ratings fearing a downgrade. The final ratings had the same wording as suggested by the IL&FS executive. Said the Thornton report: It indicates that IL&FS may have been able to potentially influence the wordings/rationale of India Ratings.
Change in ratings after meetings
This was not the only way that IL&FS influenced the ratings though. The report quotes emails to cite several examples of how rating agencies changed ratings of IL&FS Group companies after meeting their key executives.
-On December 27, 2016 CARE shared the rating letter for IL&FS Engineering and Construction Company Limited, that showed it was being downgraded to BB+ with a stable outlook. Three days later, a meeting was set up between representatives of IL&FS and Rajesh Mokashi, MD of CARE. By the time the rating was made public on February 9, 2017, the rating was reaffirmed to BBB- with a stable outlook.
Mokashi was sent on leave earlier this week.
-On April 11, 2016 CARE sent an email to Gujarat Road and Infrastructure Company Limited informing them about the provisional rating of AA+ for its upcoming Rs 300 crore debenture issue. While IL&FS said that it doesn t work for us and that they already had a AAA rating from another agency. Email exchanges later show that Saha told his colleagues, I spoke to Rajesh M . CARE gave the debentures AAA rating on July 25, 2017.
-On November 15, 2011, Fitch intended to give a AAA rating with a negative outlook to IL&FS and emailed the draft rating commentary to Saha for any factual error . The email mentioned it is scheduled for release the next day. Saha briefed Parthasarathy and Hari Sankaran (VC & MD, IL&FS). Parthasarathy told Saha to talk to Ambreesh Srivastava (Head of Financial Institutions – South and Southeast Asia of Fitch Ratings) and see if you can delay their announcement . On November 17, IL&FS shared its comments and sought for a meeting. Fitch released the rating on November 21, and gave it a AAA rating with a stable outlook.
Keeping ratings private
The key management personnel of IL&FS also used to obtain ratings from rating agencies and kept it private in case a favourable rating was not obtained. The report cites an email dated April 8, 2013 which was sent by an ITNL executive to his colleague that ratings by Brickwork could be kept private if the highest short term rating is not given.
The report also cited another email that by paying additional $68,000 (Rs 47 lakh) to Moody s, ratings could be kept in private domain and it was potentially agreed by a top IL&FS executive. The report said that given the liquidity stress in ITNL, it is unusual to note that significant amount i.e. $68,000 was offered to Moody s to keep the ratings of ITNL in private domain .
Pressure to withdraw
In an email dated September 20, 2018, an IL&FS executive wrote to key management colleagues that ICRA had suggested that IL&FS withdraw a rating request as favourable ratings could not be provided. You are aware that ICRA is keen to withdraw the provisional AAA rating for the proposed SBI loan…if this is the correct understanding, ICRA suggests that ITNL may request for the rating to be withdrawn in view of the transaction not going through on current terms. This may help avoid the embarrassment… the executive wrote.
Asked about the findings of the Grant Thornton report by The Indian Express, all agencies denied any wrongdoing. CARE didn t respond. Said ICRA: We are aware of the interim report commissioned by ILFS board. We are reviewing the content of the report; however we cannot comment on the accuracy of the information at present .
India Ratings said its ratings were based on robust and transparent analysis of relevant information and the Thornton report was based on partial and selective source material from IL&FS…demonstrates a limited understanding of the credit rating process and has no legal standing.
Moody s said the report is wrong with respect to Moody s as the rating agency has never requested, accepted or in any way agreed to receive an additional fee in exchange for keeping a rating in the private domain, as the draft report inaccurately claims .
Brickwork Ratings said that out of 105-page interim report, Brickwork Ratings finds mentioned in about 7 pages and those pages clearly indicate that Brickwork Ratings did not assign the highest rating to IL&FS because it follows robust, transparent and consistent rating methodology .