The former senior management of debt-laden Infrastructure Leasing & Financial Services (IL&FS), including Arun K Saha and Ravi Parthasarthy, influenced rating agencies for delaying or changing debt ratings of the group and its subsidiaries, an investigation by the Serious Fraud Investigation Office (SFIO) has found, sources told Moneycontrol.
The investigation revealed that Arun K Saha, the former joint Managing Director of IL&FS, threatened to discontinue business to the rating agencies if they gave unfavourable ratings. The group was enjoying "AAA" - the highest credit rating - until August 2018, just before one of its subsidiaries, IL&FS Transportation Network Ltd, defaulted on its payment obligations.
"Primary investigation reveals that Ravi Parthasarathi and Arun K Saha met rating agency ICRA's MD Naresh Thacker to convince him to delay the rating results. The rating agencies had deferred plans to downgrade group subsidiaries twice in 2015 as well as in 2018," the report said.
The SFIO has a copy of a mail from Saha to Parthasarthy: "Rating surveillance is going on and the prognosis is not good. They had taken up to their committee (sic) and came back with their plan for a downgrade with negative outlook (sic) from stable outlook at present. A meeting with you and Naresh in this connection would be helpful in this regard."
The probe found that the group was using pressure tactics on other rating agencies as well to get favourable ratings, as early as 2013.
On October 8, 2013, Arun K Saha wrote to Parthasarthy regarding the contract with rating agency Crisil after meeting with then-MD of Crisil, Roopa Kudva. Saha wrote, "Post your meeting with Roopa Kudva, there has been a series of officials visiting for business development. Crisil has just concluded the rating surveillance of ITNL and they would revert in next few days on the removal of the existing outlook Negative. We would engage with them for the new businesses after the foregoing. (sic)"
As Crisil did not change the rating, they were not given the business.
Responding to Moneycontrol's queries, Crisil said: "We do not comment on speculations and private conversations. To set the record straight, CRISIL did not rate IL&FS, IFIN or IEDCL. CRISIL rated ITNL, which was withdrawn in 2016. CRISIL has no ratings outstanding on ITNL. As a fact check, the rating history of ITNL (which is in the public domain) indicates that the negative rating outlook (initially assigned in May 2012) was reaffirmed by CRISIL at Negative in Jan 2014."
The report said that on May 4, 2018, ICRA's chief rating officer Anjan Ghosh had spoken to Saha over phone about the impending downgrade of ITNL's debt. However, ICRA did not release the report after Ravi Parthasarthy's discussion with Naresh Thacker.
In response to a query by Moneycontrol, ICRA replied: "ICRA has not received any investigation report containing these allegations. ICRA has clear policies in place to protect the integrity and independence of its ratings, including policies separating its rating and commercial activities."
Queries sent to CARE and India Ratings did not elicit any response.
On May 8, 2018, one of Saha's juniors wrote a mail to him regarding a call between investors in IL&FSā¦.. and the ratings agencies.
The mail said: "Kotak has just informed me that some investors of IFIN will be placing call with rating agencies today to if there are any concern on IFIN or IL&FS or overall group. Request that we handle the matter appropriately thru our relationship with rating agencies".
To this, Saha responded, "Have already spoken to CARE and India Ratings and they are fully briefed to handle investors' queries."
Non-Convertible Debenture of IFIN worth Rs 4800 crore was first downgraded by CARE on August 16, 2018. ICRA downgraded the paper on September 8, 2018. Strangely, just a month back, ICRA had reaffirmed its "A1+" rating on commercial paper, but cut the rating on downgrades long terms loans and debenture from AAA to AA positive. In its remarks, the rating agency praised the track record and prudent approach of the management.
After ICRA downgraded the rating of ITNL from A to A negative, On May 4, Arun K Saha discussed the matter with Ravi Parthasarthy over mail. In response, on May 5 Parthasarthy wrote, "Spoken to Naresh and criticised them for jumping the gun without account being reviewed, status on claims understood."
Arun K Saha told SFIO: "I know Rajesh Mokashi, MD of CARE and Anando Bhowmik, head of Financial Service Ratings of India Rating."
When grilled by SFIO about the mails to Parthasarathy, Saha was unable to give convincing replies, sources said.
"SFIO may complete the investigation report against rating agencies in the next two months. And, it may propose action under Section 36 of companies act," a source told Moneycontrol.
The Securities and Exchange Board of India (SEBI) has already started adjudication against the ICRA, CARE and India Ratings and soon Enforcement Directorate will also call the management of rating agency for questioning.Source-