The Market Regulator, SEBI has noted in a few recent cases of defaults that even though the rated entity was able to correct the default within a relatively shorter span of time, the rating could not be upgraded and continued to be under sub-investment grade due to the extant provisions on post-default curing period. There is a post-default curing period of 90 days for the rating to move from default to speculative-grade and generally 365 days for default to move to investment grade. There is a possibility that such cases may increase in the wake of the COVID-19 pandemic.
The circular came after SEBI received representation from various stakeholders. The watchdog noted that in a few recent cases of defaults the rating could not be upgraded to investment grade even though the rated entity was able to correct the default within a relatively shorter span of time due to extant rules.
Accordingly, the regulator has revised the policy after taking into consideration the representation received from various stakeholders and analysis of the same. “After a default is cured and the payments regularised, a CRA shall generally upgrade the rating from default to non-investment grade after a period of 90 days based on the satisfactory performance by the company during this period. CRAs may deviate from the said period of 90 days on a case-to-case basis, subject to the CRAs framing a detailed policy in this regard,” SEBI said.
Further, the CRA shall formulate a policy in respect of the upgrade of default rating to investment grade rating and place it on its website.
“The policies framed as above may include scenarios like technical defaults, change in management, acquisition by another firm, a sizable inflow of long-term funds or benefits arising out of regulatory action, etc. which fundamentally alter the credit risk profile of the defaulting firm,” SEBI directed.Subscribe Taxscan AdFree to view the Judgment