Coronavirus Impact: SEBI Eases Default Recognition Norms For Credit Rating Agencies

The market regulator has given credit rating agencies the option not to classify missed payments by a company as a default if it’s caused because of the lockdown or a loan moratorium granted to counter the economic disruption during the new coronavirus outbreak.

The market regulator has eased the deadline for credit rating agencies to issue a press release or rating action after assessing a listed entity. It, however, advised rating agencies to try and finish this on a “best-effort basis”. SEBI also granted an extension of 30 days to file half-yearly and annual disclosures by credit rating agencies.

Will It Help?

The relief granted would be subjective, according to Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund. Companies that are already stressed will have to be downgraded and rating agencies would need to distinguish companies impacted due to the lockdown, he told BloombergQuint.

“Companies need to prove it to rating agencies so it is a fallback measure,” he said.
Srivastava, however, does not expect large companies to face a problem with bond repayments but smaller ones may find it tough.

Ajay Manglunia, managing director and head of institutional fixed income at JM Financial, said that a moratorium for bond issuers in this tough time is welcome so that credit rating agencies do not take action which could lead to panic. A downgrade leading to knee-jerk selling could hurt investors more, Manglunia said.

According to Manglunia, it will be easy to identify companies that intentionally default despite having the funds and the ones with genuine business issues. But it will be very difficult to determine who is capable of making payments and who is not, because everyone is impacted. “There is a cascading effect on cash flows as the lockdown has led to the entire cycle stopping,” Manglunia said.