Rating agencies were aware of the stress at IL & FS in India, but gave good ratings: audit

MUMBAI / NEW DELHI (Reuters) – Credit rating agencies have awarded Infrastructure Leasing & Financial Services (IT & FS) and group companies in India a high rating for many years, despite a deterioration in financial health. a special audit led by Grant Thornton India.

The audit firm Grant Thornton has been tasked by the new board of directors of IL & FS to conduct this review as a result of the government's decision to take over the group after its defaults on debt securities sparked fears of financial contagion.

Grant Thornton reviewed the role of five rating agencies – India Ratings and Research of Fitch Group, Moody's Indian subsidiary, ICRA, Standard & Poor's local Crisil unit, CARE Ratings and Brickwork Ratings India – which recently awarded 429 ratings to various IL & FS financial instruments. years.

In a 105-page report, reviewed by Reuters on Saturday, Grant Thornton said the agencies had raised concerns over the financial strains and liquidity situation of the IL & FS Group between June 2012 and June 2018, while continuing to Assign "constantly high" ratings reversed last year.

"Various strategies deployed by the key managers of the IL & FS Group and some favors / gifts provided to rating agency managers suggest possible reasons for the satisfactory quality of the ratings provided to the IL & FS group," Grant Thornton said in his report. report, according to which detailed gifts or favors such as smartwatches and tickets for games abroad.

IL & FS declined to comment. India Ratings said the Grant Thornton report was based on "partial and selective sources," adding that "our ratings were based on a robust and transparent badysis of relevant information."

Brickwork stated that it did not award the highest scores to IL & FS "because it follows a robust, transparent and consistent rating methodology" and that its actions were not influenced by any commercial pressure or demand for withdrawal of rating.

CIFAR, Crisil and CARE did not immediately respond to a request for comment.

The IL & FS crisis that began last year sparked a series of federal investigations into the company's operations, but the Grant Thornton report raises questions about whether rating agencies have misled investors about the stress levels experienced by other shadow banking companies in India, where new fractures are emerging. .

Dewan Housing Finance Corp (DWNH.NS), another big company in the sector, warned last week that its financial situation was dire, raising more and more concerns for the health of this sector and signaling that the crisis was far from over .