Jailed Arun Saha centrifugal force in fixing rating agencies at IL&FS
The rating agencies fiasco viz IL&FS is now common knowledge. Triple A rated IL&FS Group entities enjoyed best of credit worthiness in the market place and a whole catalogue of high profile MNCs, trusts and corporate entities subscribed to its bonds.
 
On Wednesday, it accounted for another victim. CARE Ratings placed Chief Executive Officer (CEO) Rajesh Mokashi on leave until further notice, making it the second rating agency to do so amid regulatory concerns. Earlier this month, ICRA Ltd, the Indian unit of Moody's Investors Service, placed its CEO Naresh Takkar on leave after Sebi forwarded concerns raised anonymously to the company. 
 
CARE said Mokashi would be on leave until the company had examined an anonymous complaint against him sent to the Sebi. The same Mokashi connect emerges in the questioning of joint Managing Director (MD) at IL&FS, Arun Saha.
 
Saha, a key member of the operating cabal who was arrested by the Enforcement Directorate (ED) in mid-June, has during the course of his interrogation dropped quite a few clangers and implicated himself and the clique which ran the Group headed by Ravi Parthasarthy on the jiggery pokery that was going on. 
 
The malfeasance stems from the role played by this closed user group. The narrative that emerges from Saha's questioning on this issue is a telling tale of how the collusion between managements and ratings agencies functions to the detriment of corporate India. 
 
Take a gander at the questioning of Saha by the Serious Fraud Investigation Office (SFIO), which reveals the world of complicity. On a question posed to him by the SFIO during the course of the interrogation, Saha is asked about a mail dated December 30, 2015 from Ravi Parthasarthy to him. His response is that he intimated Ravi that IL&FS had not given CRISIL any business and only once the negative rating in ITNL was removed by them would business be given to them again for new ratings. 
 
On being asked about how extreme pressure was brought to bear in the context of forwarding of the Rating letter with the mail subject, IEECL-CARE RATING BBB- OUTLOOK STABLE, Saha's retort was that it was done in the context of achieving the result for FY 2017 with only two months left in the financial year. 
 
Extreme pressure being in the context of the Rating Agency agreeing to the company's Plan. So brazen and naked was the threat of removing or giving business by Saha and Parthasarthy that it was used as a lever for power play. 
 
Here is a sample of the line of questioning:
 
Q4. Please state the issues which you were handling in rating agencies in absence of Ravi in light with the answer to question no.30 in your statement dated 9.4.2019.
 
Ans. The matters handled were with regard to update on fund raising plan, Operational issues raised by the Rating agencies. Post Mr Parthasarathy's illness attending meeting with Rating Agencies along with Mr Hari Sankaran on matters relating to capital raising plan in IL&FS that was contemplated and the shareholder support and divestment initiatives of ITNL and other assets.
 
Q5. What are the operational issues which were handled by you with the rating agencies?
 
Ans. Issues, if any that the agency wanted to have discussions on any operational matters. Like various discussions were held with regard to adoption of IND AS account standard, compliance of norms, observations of auditors etc.
 
Q8. You have been shown email dated 24.11.2016 from Hari to you regarding appointment of an Independent director, why have you stated that in the reply of the same that the person has to be non-intrusive and obedient?
 
Ans. That was inappropriate communication. What I wanted to communicate was that the person should be a nice gentleman.
 
Q9. Are you suffering from any mental illness?
 
Ans. No, I am not suffering from any mental illness.
 
Q10. Then in that situation how can the words non-intrusive and obedient mean nice? Which in fact are the very reasons why an independent director is mandated in Companies Act?
 
Ans. It was a judgmental error to use those terms.
 
Q11. Are you saying today on 17.04.2019 that the words used by you in 2016 were inappropriate for the appointment of an independent director?
 
Ans. Yes I am saying this today.
 
Q13. Please see the email dated 4.5.2018 from you to Ravi wherein you have stated that I have told ICRA to keep in abeyance the downgrade in rating to A- (negative) for ITNL. Can you do so?
 
Ans. I had requested ICRA on intimation from ITNL, that to keep the rating decision in abeyance for discussions and I wanted the CFO of ITNL to meet them asap.
 
Q14. Were you not interfering in the independent process of rating agencies to the advantage of your company?
 
Ans. No. As soon as a rating mandate is given to the rating agency, the agency has the unfettered right to go ahead with their rating decisions. As a customary practice, rating agencies keep a communication with the Company till it's formally published and provide draft of their communication for review and comments.
 
Q20. Were such communications with Mr Anjan Ghosh done previously also by you for ratings given by ICRA for instruments raised by your companies?
 
Ans. I do''t think so, it has been done by me previously for ratings given by ICRA for instruments raised by our companies. This would be a one off case, where such telephonic communication has been made with Mr Anjan Ghosh and email to that effect (dated 04.05.2018) had been sent to me which is mentioned above.
 
Q21. So you mean to say that you were influencing the rating agencies after the customary practice of communication sent to your company?
 
Ans. No, in this case no formal communication was sent to me.
 
Q23. Having written -- "I have already spoken to CARE and India Rating"", please explain what does this mean? Were you speaking directly and if so to whom?
 
Ans. I do‘'t recollect to whom I have spoken in the rating agency.
 
Q24. Do you know anyone in CARE and India Ratings?
 
Ans. Mr Rajesh Mokashi, MD of CARE and Mr Anando Bhowmik, head of financial services ratings of India Ratings were known to me.
 
Q16. In case the interactions were done by the officials of the companies with the rating agencies then in what capacity were these rating agencies informing you?
 
Ans. The communications take place at the credit department and accounts department and the credit department handling these rating agencies communications were headed by Sujoy Das and in case of ITNL it was handled by Mr Dilip Bhatia, CFO.
 
Q17. So you mean to say in the context of the mail above that Dilip Bhatia informed you about the downgraded rating of ITNL by ICRA?
 
Ans. The name of the person who intimated me over the phone about this downgrade is not recollected today but he was reporting to Dilip Bhatia, CFO in ITNL.
 
Q18. So after this telephonic communication by this person in ITNL you mailed Ravi immediately about this downgrade.
 
Ans. Yes.
 
Q25. Is''t it coincidental that you are knowing all the heads of the rating agencies in spite of not having any mandate for taking up the task of rating of the IL&FS entities?
 
Ans. I have been dealing for IL&FS rating for over two decades and in this process have made various officials of rating agencies from time to time and on few occasions interacted with rating agency officials for group rating if needed by the group entity.
 
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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    IL&FS Mess: Grant Thornton Submits Interim Report on Forensic Audit of Credit Rating Agencies

    Infrastructure Leasing & Financial Services (IL&FS) says Grant Thornton, which was appointed to conduct forensic audit on credit rating agencies (CRAs) engaged its group companies over the past 10 years, has submitted its first report.

    In a statement, IL&FS says, the audit evaluates the role of CRAs in rating various debt instruments and facilitating excessive borrowings from money markets across group companies that eventually led to defaults.

    The board had appointed Grant Thornton to undertake this forensic audit on CRAs and submit the report in time bound manner. Grant Thornton has submitted its findings in the interim report to IL&FS.

    The report has been shared with relevant stakeholders, sector experts, and legal teams for information, consultation and opinion, the company says.

    The mandate for the forensic report was to audit the role of CRAs and discover any possible wrong-doings in rating IL&FS group companies during the period of 2008 to 2018.

    The report has analysed several email communications between the erstwhile management and the representatives of credit rating agencies during the specified period.

    CARE Ratings, ICRA, India Ratings and Brickwork have been the main rating agencies for IL&FS Transportation Networks Ltd (ITNL), IL&FS Financial Services Ltd (IFIN) and IL&FS during the period reviewed by Grant Thornton.

    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.

    Brickwork was introduced in IFIN and ITNL from 2016, replacing CRISIL (in ITNL), during this period under review, the statement from IL&FS says.

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    Jet Airways: Govt Says It Has No Role in Raising Funds for the Carrier
    The Union government has said that mobilising financial resources and ensuring efficient operations are the responsibility of Jet Airways and it has not role in raising funds for the ailing carrier.
     
    Hardeep Singh Puri, minister of state for civil aviation (independent charge), while responding to a question in the Lok Sabha, says, "... each airline prepares its business plan on the basis of its own market assessment and liabilities. Mobilising financial resources and ensuring efficient operations as per business plan are the responsibility of the airline. Government of India has no role in raising funds for Jet Airways (India) Ltd, as it is the internal matter of the airline."
     
    Kaushalendra Kumar, a member of Parliament (MP) from the Lok Sabha has asked the question about revival of Jet Airways.
     
     
    While describing efforts taken by the government to revive Jet Airways, the minister denied that the situation occurred due to action in time by State Bank of India (SBI). He says, "Jet Airways reported aggregated losses during past few quarters, which eroded its liquidity and jeopardised its ability to sustain its operations. As a result, there were significant overdues towards all creditors including the lessors of the aircrafts, pilots, suppliers, oil companies and employees. Lenders explored various options for revival of the company through resolution plan. To mitigate immediate operation crisis faced by the company, promoters and lenders were expected to infuse funds. Since the promoters did not bring in full amount of their share, therefore the lenders' consortium led by SBI could not infuse the committed interim fund."
     
    "...bids were called by the lenders for change in ownership and management of the company. However, no unconditional and proper bid was received. It was understood that some of the relaxation or waiver sought are only available under a corporate insolvency resolution process (CIRP) under the insolvency and bankruptcy code (IBC). Hence, SBI has filed an application in the National Company Law Tribunal (NCLT), Mumbai on 17 June 2019 under the IBC to work out a resolution plan. The said application was admitted by NCLT on 20 June 2019. Revival of the airline is now possible only under IBC," Mr Puri added.
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