IL&FS case: Rating agencies faked IFIN ratings to dupe investors
Credit rating agencies played major villain in the IL&FS crisis as they adjudged positive and impressive ratings on a regular basis to commercial papers and non-convertible debentures (NCDs) of IL&FS Financial Services (IFIN) despite unhealthy financial condition of the company, revealed an investigation report submitted by the Serious Fraud Investigation Office (SFIO) to the Ministry of Corporate Affairs.
 
The document shows that several investors who subscribed to the IL&FS' financial arm's NCDs and commercial papers, attributed their decision to invest on the high ratings accorded by the rating agencies.
 
Anurag Jain, Chief Investment Office at Canara HSBC OBC Life Insurance Company, which invested around Rs 30 crore in commercial papers and around Rs 10 crore in NCDs of IFIN, said their decision to invest was primarily influenced by the credit ratings provided by CARE and ICRA.
 
"The investment in the IL&FS/IFIN papers was done primarily on the basis of the rating of the companies as provided by the rating agencies CARE and ICRA, which are the highest rated in their categories," the SFIO document quoted Jain as saying.
 
During the period between 2013 and 2018, the agencies which gave ratings to the financial instruments of IFIN were CARE Ratings, ICRA Ltd, India Ratings & Resarch and Brickwork Rating India, according to the document.
 
With an investment of around Rs 115 crore in IFIN's NCDs, the Oriental Insurance Company was also apparently duped by the ratings accorded to IFIN.
 
"The basis of selection of debt securities are based on the financials, credit ratings and best yields available in the market. IFIN is an NBFC and based on the financial, credit ratings and better yields available, some funds have been allocated periodically based on the constant AAA ratings assigned by two rating agencies, CARE and India Ratings," said Dushyant Kumar Bagoti, DGM at Oriental Insurance Company.
 
Further, manager at the New Indian Assurance Company, Gyan Ranjan, recorded on oath said: "If rating is AA or above then there should not be any issue on the repayment."
 
New India Assurance Company had invested Rs 62 crore in IFIN NCDs.
 
Implicating the rating agencies, the SFIO said in the document: "From the above it is clear that the investor in NCDs were induced to investment based on the heavy financials and credit rating assigned to the company.
 
"The investors of the NCDs of the company were induced by the management by deliberately concealing the material facts pertaining to the true and fair view of the affairs of the company and the observation of the RBI with respect to NOF, CRAR etc, which had major adverse effect on the company's capacity to continue as going concern."
 
SFIO also noted that largely all the four agencies had given the highest rating to the long-term and short-term instruments of IFIN on the strength of its parentage and management linkages with the Infrastructure Leasing & Financial Services Limited (IL&FS).
 
The probe into the role of credit rating agencies with regard to IFIN needs to be taken further in the ongoing investigation of IL&FS, it said.
 
With the testimonials and evidences going against the rating agencies, they might be next in the line of fire after the auditors of IL&FS, which the government wants to bar from auditing operations in the country.
 
The operations of rating agencies are already under close watch of the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) and both the regulatory bodies are looking into the business model of these agencies.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    R Balakrishnan

    3 months ago

    The investment managers are just passing the buck. Where was their due diligence or analysis? The managers are more guilty than the rating agencies. The whole industry knows about the rating agencies...

    REPLY

    Nagaraju Bommanahalli

    In Reply to R Balakrishnan 3 months ago

    ED is doing drama ICICI Bank chandakochar is well known to all she done huge fraud in ICICI Bank, this drama of enquire is doing from past one year, but still she is not arrested, reasons In this icici bank scam all SEBI auditors ED RBI central government rating agencies big leaders of all parties involved.central government making all efforts to avoid arrest these fellows,if arrested all all foreign country become knows most of the Indian companies running on bogus and take away all foreign investment,then India become bankruptcy.This is well known by central government hence avoiding all efforts to arrest directors of icici bank chandakochar DHFL jetairways Videocon kingfisher airline PNB bank head [email protected] etc . wait in few months most of the common people investment in icici bank NBFC PSU banks equity NCD mutul funds become Zero

    SC raps petitioner for defective plea against Indiabulls
    The Supreme Court on Wednesday pulled up for filing a defective application a petitioner, Abhay Yadav, who has alleged that Indiabulls Housing Finance Ltd (IHFL) misappropriated Rs 98,000 crore of public money.
     
    Earlier on Wednesday, IHFL senior counsel A.M. Singhvi urged the vacation bench comprising Justices Indira Banerjee and Ajay Rastogi to list the matter for hearing urgently, as frivolous allegations have been made against the company in the petition, which has been deliberately leaked to the media. 
     
    The company counsel represented that as a consequence of these acts, IHFL's market capitalisation has been eroded by Rs 8,000 crore in the two days since filing of the petition, causing losses to lakhs of shareholders.
     
    The court observed that while the petitioner has sought directions against respondent numbers six and seven, but, surprisingly, no identities have been assigned against them in the writ petition.
     
    Singhvi said that the petitioner had deliberately filed the plea in the vacation bench and created circumstances for the press to discuss it.
     
    "A petition has been filed against Indiabulls, but the company has not been included in the list of respondents", he said, raising an objection to the petition.
     
    The court rapped the petitioner, asking him to rectify the defects and said the matter will be taken up in July.
     
    Singhvi said the company is already facing a huge loss in share value arising from the press reports following a plea filed by a milk vendor, who holds a total of only four shares. 
     
    The company alleged it is being blackmailed through the use of a novel technique.
     
    According to IHFL, Yadav became its shareholder after purchasing the shares from the stock exchange on May 9. 
     
    In a statement earlier, IHFL has described the allegations against its Chairman Sameer Gehlaut and other directors as "bizzare" and designed to malign the reputation of the company.
     
    The statement came after a plea was filed in the apex court on Monday seeking legal action against Indiabulls, Gehlaut and the other directors for alleged misappropriation of public money. It said thousands of crores had been siphoned off by Gehlaut and the directors of the firm for their personal use.
     
    "The total loans on the books of Indiabulls Housing are approx Rs 90,000 crore. The allegation of siphoning-off Rs 98,000 crores is bizarre," the company said in a regulatory filing.
     
    The company said that a racket of blackmailers has been trying to extort money from Indiabulls over the last two months threatening to write complaints to various government departments alleging siphoning off Rs 55,000 crore if Rs 10 crore was not paid to them, following which the company filed an FIR on June 4.
     
    It further said that one of the people involved in the blackmail was arrested on June 7. Following the arrest, the group of people involved floated another complaint enhancing the amount in question to Rs 98,000 crore.
     
    IHFL said the writ petition is a "desperate attempt" to malign its reputation.
     
    The statement also said that the petitioner had bought four shares in the company a month back.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User

    Sintex Industries Defaults on Rs86 crores of Loan
    Sintex Industries has announced today that it has defaulted in paying interest on 7-year 10.70% secured debentures. The debentures had been issued to six investors in a private placement. The outstanding interest is Rs3.03 crores and principal amount is Rs85.84 crores. In a filing with the BSE, it has claimed that the present liquidity crisis is temporary and will not affect its going concern.
     
    The gross principal amount on which the default above has occurred is Rs
    112.50 crore.
     
    Gujarat-based Sintex Industries has been into textiles and yarn for more 85 years. It is India’s largest producer of corduroy fabrics. In the March quarter, it reported a massive loss of Rs131 crore on a turnover of Rs591.54 crore. The interest cost component was Rs69.71 crore. It had borrowings of Rs5314.58 crore for the year ended March 2019.
     
    The well-known Sintex tank is part of a separate company Sintex Plastics which came into existence through a demerger from Sintex Industries in August 2017.  Sintex Plastics is also into custom moulding and prefab business.

     

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    COMMENTS

    Srisaisarantraders

    2 months ago

    What is the present financial situation in sintex?.we heard many bad roumers about this company...

    Ramesh Poapt

    3 months ago

    Sintex plastic is also in bad shape! The co. is in the list of money laundering
    overseas, perhaps 48 cr.

    Chandragupta Acharya

    3 months ago

    Borrowing of Rs.5300 crore and quarterly turnover of less than Rs.600 crore? What did they do with the money?

    Gaurav Dalal

    3 months ago

    Good

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