SEBI’s intervention in SREI v FITCH case

SEBI has recently filed a petition in the Calcutta HC stating that it want to intervene in the SREI v FITCH case. FITCH credit rating agency has downgraded the credit rating of SREI from AA- to A+ against which SREI Infrastructure finance has obtained a stay order from the Calcutta HC this April stating that they have already terminated the contract with FITCH and in the absence of any contract the credit rating agency cannot public its credit rating. Calcutta HC granted stay to SREI restraining FITCH to make the new credit rating public. In the mean time SREI has obtained an upgraded credit rating from another credit rating agency CARE.

                Now, SEBI has filed a petition to Calcutta HC seeking its permission to intervene into the case. SEBI has also asked court to remove its stay order stating the credit rating agency has a right to rate a security throughout its life even though the contract is terminated. It is pertinent to note that under SEBI (Credit rating agencies) Regulation a credit rating agency is bound to publish the credit rating of an issuer in print media and its own website failing which his license may be terminated.

                This kind of “Rating Shopping” has been very frequent these days in the absence of any regulatory protection for the credit rating agency and cash significant doubt on the future of credit rating agencies. In order to protect the business companies often switch to another credit rating agency which provides a higher credit rating than those which downgrades its credit rating. In India the companies can decide whether to accept or not the credit rating of an agency when they first apply for service but after its initial acceptance the agency can unilaterally modify the credit rating.