Policy on Provisional Ratings
- Credit Rating Agency in India
- Policy on Provisional Ratings
(This Policy document updates and supersedes Infomerics’ earlier policy on Provisional Ratings incorporated in OM and approved by the board in its meeting held on 30th November 2018. The revised policy is aligned with requirements prescribed by the Securities and Exchange Board of India (SEBI) vide its circular No. SEBI/ HO/ MIRSD/ MIRSD_CRADT/ P/ CIR/ 2021/ 554 dated April 27, 2021 and its subsequent clarification as regards standardizing and strengthening the policies on provisional ratings by Credit Rating Agencies.)
DEFINITION
Assignment of Provisional Ratings
The ‘provisional’ rating shall mean rating of debt instruments in cases where certain steps/actions that are crucial/critical to the assignment of credit rating are yet to be completed and/or certain documentations remain to be executed at the time of rating. Once the steps/actions are completed and required documentation is executed, the provisional rating is converted into final rating.
A rating assigned by Infomerics shall be considered as provisional, and not final, when it is contingent upon occurrence of any of the following steps or execution of following documents, as applicable:
1. Execution of letter of comfort, corporate guarantee, or other forms of explicit third- party support;
2. Execution of documents such as debenture trust deed/ debenture trustee agreement, legal agreements/ opinions, representations and warranties, final term sheet;
3. Assignment of loan pools or finalization of cash flow escrow arrangements.
4. Setting up of Debt Service Reserve Account (DSRA);
5. Opening of escrow account; or
6. For a proposed Real Estate Investment Trust (REIT) or Infrastructure Investment Trust (InvIT), pending formation of a trust - only after receipt of SEBI Registration. However, the process of obtaining rating may commence at the stage of the sponsor filing with SEBI for the registration of the Trust, subject to declaration from the sponsor to this effect being submitted to Infomerics.
Disclosure of Provisional Ratings
In accordance with the directive of Securities and Exchange Board of India (SEBI) vide its Circular no. SEBI/ HO/ MIRSD/ MIRSD_CRADT/ P/ CIR/ 2021/ 554 dated April 27, 2021, all Provisional Ratings (‘long term’ or ‘short term’) assigned by Infomerics for debt instruments shall be prefixed as ‘Provisional’ before the rating symbol in all communications viz. rating letter, press release / rating rationale, etc indicating that the rating assigned to the
instrument concerned is subject to certain pending actions and/or execution of some documentation.
Symbol for Provisional Rating
The symbolic representation of Infomerics Ratings’ provisional ratings shall be as under:
Symbol for Provisional Rating Provisional [IVR] .........
Apart from the normal disclosures required to be made by Credit Rating Agencies in case of assignment of ratings, Infomerics shall make the following additional disclosures in its press release / rating rationale for provisional ratings.
a) Pending steps/ documentation considered while assigning provisional rating.
b) Risks associated with the provisional nature of the credit rating, including risk factors that are present in the absence of completed documentation / steps.
c) Rating that would have been assigned in absence of the pending steps/ documentation considered while assigning provisional rating. In cases where the absence of said steps/ documentation would not result in any rating being assigned by the CRA (e.g. in case of provisional rating for REIT/ InvIT – pending formation of trust), the CRA shall specify the same in the press release.
d) While assigning provisional rating to a debt instrument proposed to be issued, the press release shall specify that in case the debt instrument is subsequently issued, the provisional rating would have to be converted into final rating as per the validity period
e) While assigning provisional rating to an issued debt instrument, the press release shall specify the rating and timeline implications as per the validity period
f) In case of provisional ratings for REIT/ InvIT, the following disclosures shall also be made, wherever applicable:
i. the broad details of the assets that are proposed to be held by the REIT/ InvIT, the proposed capital structure, etc.
ii. that Infomerics has obtained an undertaking from the sponsor stating that the key assumptions (relating to the assets, capital structure, etc.) are in consonance with thedetails filed by the sponsor with SEBI.
iii. In case of change in provisional rating due to change in aforesaid key assumptions, the press release shall state that the rating is based on a declaration from the issuer that similar changes have been made in the filing with SEBI.
Unaccepted Provisional Ratings
In case the provisional rating assigned is not accepted by the issuer (or sponsor, in case of REITs/InvITs), then Infomerics shall make the following supplementary disclosures on its website under the "Unaccepted ratings”:
1. The details of the steps taken for assigning the provisional rating. e.g in case of REITs/ InvITs, such disclosure shall contain the broad details of the assets to be housed under theTrust, the proposed capital structure, etc.
2. The rating that would have been assigned in the absence of the said steps/ documentation.
Validity period of a Provisional Rating
Normally a time period of 90 days (Validity Period) shall be allowed to the Issuer for completing various necessary steps/actions and/or required documentations. The provisional rating shall be converted into a final rating within 90 days from the date ofissuance of the debt instrument.
In case of REIT / InvIT, the validity period shall be computed from the completion of fund raising/the issuance of units.
The issuer shall be required to apprise Infomerics about the status of completion of necessary steps/actions and/or documentation. At the end of stipulated period of 90 days, Infomerics shall review the case.
In case of instruments which are already issued, the issuer is expected to complete the pending steps/actions and/or execute the pending documents within the validity period of 90 days from the date of issuance of the debt instrument/ date of availing the borrowing facilities.
Accordingly, Infomerics would convert the provisional rating into a final rating within 90 days of the completion of the issuance of the instrument. The final rating assigned would be based on fundamental credit profile of the entity and the status of completion of the pending steps/actions and/or execution to the required documents.
An extension of 90 days may be granted to the issuer by the respective Rating Committee of Infomerics on a case-to-case basis for completion of pending steps/actions and/or required documentations subject to receipt of confirmation from the issuer as regards the intention to complete the same within the extended period. The extension of provisional ratings assigned by the ERC for the additional period upto 90 days shall be considered by the IRC Group A subject to there is NO material changes in the term sheet/terms of the facilities.
Under no circumstances, Infomerics shall assign any provisional rating to a debt instrument upon the expiry of 180 days from the date of its issuance.
Review, Monitoring and Withdrawal of Provisional Ratings
Provisional ratings once assigned would be regularly reviewed and monitored and appropriate rating action under different scenarios would be taken by Infomerics as mentioned below:
1.) Changes in the fundamental credit profile of the issuer entity
Provisional rating would be accordingly revised to factor in the changes.
2.) Material changes in the terms of the transaction before completion of the validity period
2. i) Prior to the issuance of instrument/ availment borrowing facility
During the validity/extended validity period, in case there is any material change/changes in the terms of the transaction after the initial assignment of the provisional rating
but prior to issuance of instrument/ availment borrowing facility, the provisional rating may be withdrawn as the instrument is yet to be issued. Fresh provisional rating can be assigned based on the revised terms of the transaction if the client seeks the same.
2. ii) After the issuance of instrument/ availment borrowing facility
Under the scenario of material changes in the terms of transaction during the validity period but after the issuance of instrument/availment of borrowing facility, the provisional rating would be withdrawn, and a fresh provisional rating would be assigned simultaneously based on the revised terms of the transaction. Both the withdrawal of initial provisional rating and the assignment of fresh provisional rating would be communicated through a common press release.
On completion of the validity/extended validity period, revised provisional rating would be converted to final rating. The final rating would be assigned based on the fundamental credit profile of the entity and the status of completion of the pending steps/actions and/or execution of the required documents.
Under the circumstances where the issuer has raised only a part of the rated debt instrument or the pending steps/actions and /or documentation is completed for only a part of the rated amount, the rating for such part-amount can be converted to final.
By the end of the extended validity period, Infomerics shall convert the outstanding provisional rating into a final rating, by factoring in the status of the pending
actions/execution of required documentations etc. The final rating may be different from the outstanding provisional rating.
Infomerics may assign provisional ratings to proposed bank facilities as well and this policy shall be accordingly applicable to the same.
Infomerics may also assign provisional ratings to proposed Mutual Fund schemes prior to their launch or before the investment portfolio is created under the scheme. While assigning such provisional ratings, Infomerics shall take into consideration the proposed composition of the portfolio (equity, debt, hybrid), credit quality, tenor etc. on the basis of information received from the Asset Management Company.
After the scheme is launched, on completion of three months from the date of creation of the portfolio under the same, Infomerics shall review the provisional rating. On the basis of review, the provisional rating shall be converted into appropriate final rating.
Infomerics shall not assign ratings for an issuer/ client evaluating strategic decisions, such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing etc. However, it may assign a final rating to a debt instrument/issuer under such situations provided it is not a scenario-based ratings / advance ratings to issuers who are evaluating strategic options.
Applicability of the Policy
The Policy shall be applicable for all new provisional rating assignments. All existing provisional ratings will adhere to the revised policy before 31 December 2021.
Policy approved in the Board Meeting dated 07th September 2022.
(This Policy document updates and supersedes Infomerics’ earlier policy on Provisional Ratings incorporated in OM and approved by the board in its meeting held on 30th November 2018. The revised policy is aligned with requirements prescribed by the Securities and Exchange Board of India (SEBI) vide its circular No. SEBI/ HO/ MIRSD/ MIRSD_CRADT/ P/ CIR/ 2021/ 554 dated April 27, 2021 and its subsequent clarification as regards standardizing and strengthening the policies on provisional ratings by Credit Rating Agencies.)
Assignment of Provisional Ratings
The ‘provisional’ rating shall mean rating of debt instruments in cases where certain steps/ actions that are crucial/critical to the assignment of credit rating are yet to be completed and/or certain documentations remain to be executed at the time of rating. Once the steps/actions are completed and required documentation is executed, the provisional rating is converted into final rating.
A rating assigned by Infomerics shall be considered as provisional, and not final, when it is contingent upon occurrence of any of the following steps or execution of following documents, as applicable:
Disclosure of Provisional Ratings
In accordance with the directive of Securities and Exchange Board of India (SEBI) vide its Circular no. SEBI/ HO/ MIRSD/ MIRSD_CRADT/ P/ CIR/ 2021/ 554 dated April 27, 2021, all Provisional Ratings (‘long term’ or ‘short term’) assigned by Infomerics for debt instruments shall be prefixed as ‘Provisional’ before the rating symbol in all communications viz. rating letter, press release / rating rationale, etc indicating that the rating assigned to the instrument concerned is subject to certain pending actions and/or execution of some documentation.
Symbol for Provisional Rating
The symbolic representation of Infomerics Ratings’ provisional ratings shall be as under:
|
Symbol for Provisional Rating |
Provisional [IVR] ......... |
Apart from the normal disclosures required to be made by Credit Rating Agencies in case of assignment of ratings, Infomerics shall make the following additional disclosures in its press release / rating rationale for provisional ratings.
a) Pending steps/ documentation considered while assigning provisional rating.
b) Risks associated with the provisional nature of the credit rating, including risk factors that are present in the absence of completed documentation / steps.
c) Rating that would have been assigned in absence of the pending steps/ documentation considered while assigning provisional rating. In cases where the absence of said steps/ documentation would not result in any rating being assigned by the CRA (e.g. in case of provisional rating for REIT/ InvIT – pending formation of trust), the CRA shall specify the same in the press release.
d) While assigning provisional rating to a debt instrument proposed to be issued, the press release shall specify that in case the debt instrument is subsequently issued, the provisional rating would have to be converted into final rating as per the validity period
e) While assigning provisional rating to an issued debt instrument, the press release shall specify the rating and timeline implications as per the validity period
f) In case of provisional ratings for REIT/ InvIT, the following disclosures shall also be made, wherever applicable:
i. the broad details of the assets that are proposed to be held by the REIT/ InvIT, the proposed capital structure, etc.
ii. that Infomerics has obtained an undertaking from the sponsor stating that the key assumptions (relating to the assets, capital structure, etc.) are in consonance with the details filed by the sponsor with SEBI.
iii. In case of change in provisional rating due to change in aforesaid key assumptions, the press release shall state that the rating is based on a declaration from the issuer that similar changes have been made in the filing with SEBI.
Unaccepted Provisional Ratings
In case the provisional rating assigned is not accepted by the issuer (or sponsor, in case of REITs/InvITs), then Infomerics shall make the following supplementary disclosures on its website under the "Unaccepted ratings”:
Validity period of a Provisional Rating
Normally a time period of 90 days (Validity Period) shall be allowed to the Issuer for completing various necessary steps/actions and/or required documentations. The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the debt instrument.
In case of REIT / InvIT, the validity period shall be computed from the completion of fund raising/the issuance of units.
The issuer shall be required to apprise Infomerics about the status of completion of necessary steps/actions and/or documentation. At the end of stipulated period of 90 days, Infomerics shall review the case.
In case of instruments which are already issued, the issuer is expected to complete the pending steps/actions and/or execute the pending documents within the validity period of 90 days from the date of issuance of the debt instrument/ date of availing the borrowing facilities.
Accordingly, Infomerics would convert the provisional rating into a final rating within 90 days of the completion of the issuance of the instrument. The final rating assigned would be based on fundamental credit profile of the entity and the status of completion of the pending steps/actions and/or execution to the required documents.
An extension of 90 days may be granted to the issuer by the respective Rating Committee of Infomerics on a case-to-case basis for completion of pending steps/actions and/or required documentations subject to receipt of confirmation from the issuer as regards the intention to complete the same within the extended period. The extension of provisional ratings assigned by the ERC for the additional period up to 90 days shall be considered by the IRC Group A subject to there is NO material changes in the term sheet/terms of the facilities.
Under no circumstances, Infomerics shall assign any provisional rating to a debt instrument upon the expiry of 180 days from the date of its issuance.
Review. Monitoring and Withdrawal of Provisional Ratings
Provisional ratings once assigned would be regularly reviewed and monitored and appropriate rating action under different scenarios would be taken by Infomerics as mentioned below:
1.) Changes in the fundamental credit profile of the issuer entity
Provisional rating would be accordingly revised to factor in the changes.
2.) Material changes in the terms of the transaction before completion of the validity period
2. i) Prior to the issuance of instrument/ availment borrowing facility
During the validity/extended validity period, in case there is any material change/changes in the terms of the transaction after the initial assignment of the provisional rating but prior to issuance of instrument/ availment borrowing facility, the provisional rating may be withdrawn as the instrument is yet to be issued. Fresh provisional rating can be assigned based on the revised terms of the transaction if the client seeks the same.
2. ii) After the issuance of instrument/ availment borrowing facility
Under the scenario of material changes in the terms of transaction during the validity period but after the issuance of instrument/availment of borrowing facility, the provisional rating would be withdrawn, and a fresh provisional rating would be assigned simultaneously based on the revised terms of the transaction. Both the withdrawal of initial provisional rating and the assignment of fresh provisional rating would be communicated through a common press release.
On completion of the validity/extended validity period, revised provisional rating would be converted to final rating. The final rating would be assigned based on the fundamental credit profile of the entity and the status of completion of the pending steps/actions and/or execution of the required documents.
Under the circumstances where the issuer has raised only a part of the rated debt instrument or the pending steps/actions and /or documentation is completed for only a part of the rated amount, the rating for such part-amount can be converted to final.
By the end of the extended validity period, Infomerics shall convert the outstanding provisional rating into a final rating, by factoring in the status of the pending actions/execution of required documentations etc. The final rating may be different from the outstanding provisional rating.
Infomerics may assign provisional ratings to proposed bank facilities as well and this policy shall be accordingly applicable to the same.
Infomerics may also assign provisional ratings to proposed Mutual Fund schemes prior to their launch or before the investment portfolio is created under the scheme. While assigning such provisional ratings, Infomerics shall take into consideration the proposed composition of the portfolio (equity, debt, hybrid), credit quality, tenor etc. on the basis of information received from the Asset Management Company.
After the scheme is launched, on completion of three months from the date of creation of the portfolio under the same, Infomerics shall review the provisional rating. On the basis of review, the provisional rating shall be converted into appropriate final rating.
Infomerics shall not assign ratings for an issuer/ client evaluating strategic decisions, such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing etc. However, it may assign a final rating to a debt instrument/issuer under such situations provided it is not a scenario-based ratings / advance ratings to issuers who are evaluating strategic options.
Applicability of the Policy
The Policy shall be applicable for all new provisional rating assignments. All existing provisional ratings will adhere to the revised policy before 31 December 2021.
Policy approved in the Board Meeting dated 26th November, 2021
__________________________________________________________________________________________________________________________________________________________
The ‘provisional’ rating shall mean rating of debt instruments in cases where certain compliances that are crucial/critical to the assignment of credit rating are yet to be complied with or certain documentations remain to be executed at the time of rating. To illustrate, these documents/compliances may include execution of guarantee deed, opening of escrow account, appointment of Debenture Trustee, setting up of a Debt Service Reserve Account (DSRA), etc. Once the compliances are met in line with the agreed terms, the provisional rating gets converted into final rating.
DISCLOSURE OF PROVISIONAL RATINGS
In accordance with the directive of Securities and Exchange Board of India (SEBI) vide its Circular no. MIRSD-4/AS/NS/CRA/12621/2015 dated May 6, 2015, the provisional long term and short term ratings shall now carry a prefix ‘Provisional’ placed before the assigned credit rating indicating that the rating assigned to the instrument concerned is subject to certain compliances and/or execution of some documentation. The said SEBI circular mandates to standardise the term, rating symbol and manner of disclosure with regard to ‘conditional/provisional/ in-principle’ ratings assigned by Credit Rating Agencies in India. The provisional nature of rating shall be disclosed in all the communications pertaining to that instrument, including the rating communication letter and the rating rationale.
-SYMBOL FOR PROVISIONAL RATING
The symbolic representation of Infomerics Ratings’ provisional ratings shall be as under:
|
Symbol for Provisional Rating |
Provisional [IVR] ......... |
DISCLOSURE OF COMPLIANCES PENDING
The conditions and steps/documents pending, which form the basis for assigning a provisional rating shall be disclosed for the information of investors/lenders. The conversion of provisional rating into final rating shall also be disclosed no sooner after completion of the pending compliances and/or execution of documentation.
TIME PERIOD FOR COMPLETION
Normally a time period of 90 days is allowed to the Issuer for completing the various documentation related requirements.In case the required documents are not received within 120 days from the date of public release of the rating rationale pertaining to assignment of the provisional ratings, Infomerics Ratings shall take a view whether to place the provisional ratings on ‘Watch’ for the next 60 days, or to revise the provisional ratings depending upon the circumstances so warrant. If the instrument to which the provisional rating is assigned is not assigned the final rating within 120 days from the date of public release of the provisional rating, the intention of the issuer shall be ascertained with regard to completion of the compliances and/or documentation and accordingly, an appropriate decision shall be taken i.e. either to withdraw the provisional rating or extend the validity of the rating for an additional period of maximum 60 days. In case the required documents/compliances are not completed by the issuer even within 180 days (including the extension period of 60 days) from the date of public release of the provisional rating, Infomerics Ratings shall withdraw the provisional rating so assigned.
DEFINITION
The ‘provisional’ rating shall mean rating of debt instruments in cases where certain compliances that are crucial/critical to the assignment of credit rating are yet to be complied with or certain documentations remain to be executed at the time of rating. To illustrate, these documents/compliances may include execution of guarantee deed, opening of escrow account, appointment of Debenture Trustee, setting up of a Debt Service Reserve Account (DSRA), etc. Once the compliances are met in line with the agreed terms, the provisional rating gets converted into final rating.
DISCLOSURE OF PROVISIONAL RATINGS
In accordance with the directive of Securities and Exchange Board of India (SEBI) vide its Circular no. MIRSD-4/AS/NS/CRA/12621/2015 dated May 6, 2015, the provisional long term and short term ratings shall now carry a prefix ‘Provisional’ placed before the assigned credit rating indicating that the rating assigned to the instrument concerned is subject to certain compliances and/or execution of some documentation. The said SEBI circular mandates to standardise the term, rating symbol and manner of disclosure with regard to ‘conditional/provisional/ in-principle’ ratings assigned by Credit Rating Agencies in India. The provisional nature of rating shall be disclosed in all the communications pertaining to that instrument, including the rating communication letter and the rating rationale.
SYMBOL FOR PROVISIONAL RATING
The symbolic representation of Infomerics Ratings’ provisional ratings shall be as under:
|
Symbol for Provisional Rating |
Provisional [IVR] ......... |
DISCLOSURE OF COMPLIANCES PENDING
The conditions and steps/documents pending, which form the basis for assigning a provisional rating shall be disclosed for the information of investors/lenders. The conversion of provisional rating into final rating shall also be disclosed no sooner after completion of the pending compliances and/or execution of documentation.
Time period for completion
Normally a time period of 90 days is allowed to the Issuer for completing the various documentation related requirements.In case the required documents are not received within 120 days from the date of public release of the rating rationale pertaining to assignment of the provisional ratings, Infomerics Ratings shall take a view whether to place the provisional ratings on ‘Watch’ for the next 60 days, or to revise the provisional ratings depending upon the circumstances so warrant. If the instrument to which the provisional rating is assigned is not assigned the final rating within 120 days from the date of public release of the provisional rating, the intention of the issuer shall be ascertained with regard to completion of the compliances and/or documentation and accordingly, an appropriate decision shall be taken i.e. either to withdraw the provisional rating or extend the validity of the rating for an additional period of maximum 60 days. In case the required documents/compliances are not completed by the issuer even within 180 days (including the extension period of 60 days) from the date of public release of the provisional rating, Infomerics Ratings shall withdraw the provisional rating so assigned.
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