SEBI tightens rules for provisional debt rating

CRA to check pendency of compliance

These documents or compliances include execution of guaranteed deed, opening of escrow account and setting up of debt service reserve account.

Markets regulator SEBIcame out with a new framework to strengthen policies on provisional rating by credit rating agencies (CRAs) for debt instruments.

Under the framework, all provisional ratings (‘long term’ or ‘short term’) for debt instruments need to be prefixed as ‘provisional’ before the rating symbol in all communications — rating letter, press release and rating rationale, SEBI said.

Further, a rating will be considered provisional in cases where certain compliances that are crucial to the assignment of credit rating are yet to be complied with or certain documentations remain to be executed at the time of rating.

“In no case shall a rating, including provisional rating, be assigned by a credit rating agency for an issuer or client evaluating strategic decisions such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing,” SEBI said.

On validity period, SEBI said provisional rating will be converted into a final rating within 90 days from the date of issuance of the instrument.