IL&FS case: Ratings were allegedly doctored by agencies, says Grant Thornton
Grant Thornton in its report pinpoints a Real Madrid match, property deal and contribution to a trust.
According to the report, IL&FS Financial Services (IFIN) had invited an official of ratings agency Brickworks to a Real Madrid match in Europe, helped a senior person in Fitch Ratings in negotiating a property deal, and had contributed to Sameeksha Trust – the publisher of the prestigious academic journal Economic & Political Weekly in which former Icra chairman DN Ghosh was associated.
The report cites cases where ratings and rationales were changed after a review and meetings with the company. Sources added the audit firm had also found instances where the ratings were allegedly ‘prepared’ by the erstwhile directors of the company.
The report, it is learnt, has also said there were instances where high ratings were eventually cleared despite concerns within agencies whether such ratings were justified.
Four companies had been involved in rating various instruments of IFIN during 2013-2018 — Icra, CARE, India Ratings and Brickwork Ratings. More than Rs 20,000 crore was invested by provident funds, mutual funds and insurance funds based on the audit reports and credit ratings assigned to different instruments of the company and its units.
Replying to ET’s query, Icra said, “We are aware of the interim report commissioned by the board of IL&FS. We are reviewing the content of the report. However, we cannot comment on the accuracy of the information at present.”
Brickwork did not reply to emailed queries until press time Thursday. Reacting to an earlier report on the CRAs, CARE Ratings had said: “CARE Ratings has provided all information to official agencies in this regard and we do not have any further comments to offer.”
Various agencies like the Enforcement Directorate and the Serious Fraud Investigation Office (SFIO) are probing the books of IFIN.
The government-appointed new board of IL&FS has submitted the forensic report prepared by Grant Thornton to the Ministry of Corporate Affairs. Earlier, the SFIO in its charge sheet had mentioned certain email exchanges between the accused IFIN directors where they allegedly discussed ways of getting favourable ratings.
Sources said the ministry may write to the regulators to tighten the framework for ratings firms. Credit ratings agencies are regulated by both Sebi and RBI. The development comes close on the heels of CARE Ratings and Icra sending their managing directors on leave on anonymous complaints received by Sebi.
“IL&FS has completed first phase of forensic audit on credit rating agencies engaged with group companies in last ten years. 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. Grant Thornton has submitted its findings in the interim report to IL&FS,” the IL&FS board said in a statement. “The mandate for the forensic report was to audit the role of CRAs and discover any possible wrongdoings 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,” it added.
According to an industry official, while GT has pointed out cases where ratings were revised upward following a review, it has not mentioned the cases where ratings were not changed.
“Reviews after assigning a rating and reconsidering the rating after listening to the company’s views is a standard procedure in rating. One cannot put a question mark on such practice,” said the person. “While issues related to conflict of interest is a serious matter, we hope the findings do not lead to a witch hunt ... For instance, Sameeksha is an old, respectable organisation where many senior people have been associated,” said a banker who regularly deals with ratings agencies.