IL&FS Fallout? After ICRA, CARE Rating Sends Its MD & CEO Rajesh Mokashi on Leave
CARE Ratings has sent its managing director & chief executive (CEO) Rajesh Mokashi on leave with immediate effect, until further notice. CARE is the second ratings agency to send its top executive on leave after ICRA, post an anonymous complaint forwarded by Securities and Exchange Board of India (SEBI) to the agencies for probe.
"The board of directors of CARE Ratings has at its meeting decided, pending the completion of the examination of anonymous complaint received by SEBI to place Rajesh Mokashi, MD & CEO of CARE, on leave, with immediate effect, until further notice," the statement from the ratings agency says.
Mr Mokashi has been associated with CARE Ratings since 1993 and, in August 2009, was appointed on the company board.
CARE Ratings has appointed TN Arun Kumar, its executive director for ratings, as interim CEO and will not be part of ratings operations to ensure independence of ratings, it added.
Earlier this month, ratings agency ICRA sent its MD & CEO Naresh Takkar on leave following concerns raised in an anonymous representation shared by the market regulator.
Almost all rating agencies had given high ratings to Infrastructure Leasing & Financial Services (IL&FS) when the ground reality of the company was different. The rating agencies have been accused of not reporting the deteriorating financials of IL&FS. This prompted SEBI in December last year to initiate adjudication against credit rating agencies.
As per the interim report of the serious fraud investigation office (SFIO), the modus operandi of IL&FS group from 2015 to 2018, was to keep the holding company and its immediate subsidiaries financially viable and healthy, through an unsustainable, pyramidal funding, routing short-term funds borrowed at the holding company or the subsidiary company level to its various step-down or project subsidiaries, as the holding companies' contribution or to avoid default on these companies' borrowing.
The report says, "Defaults in the group companies were avoided for the period by routing funds borrowed by key companies, which projected a financially healthy picture, thus creating an unsustainable bubble in the absence of sufficient revenue generation internally by the IL&FS group."
According to SFIO, this was done to project key subsidiaries of IL&FS as financially sound through the interest charges, dividend and fee-based returns as well as through ever-greening of loan. This allowed IL&FS and its key subsidiaries to enjoy regular dividends, interest payments and high credit ratings.
During September 2018, rating agencies ICRA, CARE and India Ratings downgraded the bonds, long-term loans and short-term commercial papers of IL&FS and its subsidiaries. It is interesting to note that IL&FS did not seek ratings from CRISIL.
The credit ratings of IL&FS’ bond papers went down by nine notches to ‘BB’ grade, which is considered non-investment grade, from ‘AA+’ which indicates a strong financial profile.
The ratings of commercial papers, which are debt papers that mature within a year, went down by six notches to A4 from A1+, another instance of sharp change in the financial profile from strong to very weak.
Several mutual fund (MF) schemes hold the debt papers of IL&FS, and its subsidiaries, in large numbers. The total amount of currently outstanding debt papers held by MF schemes was valued at around Rs2,400 crore as at end-August, before the downgrade.
Separately, CARE Ratings says it has appointed Najib Shah, former chairman of Central Board of Excise and Customs (CBEC), as additional independent director on its board.