Brickwork Ratings says planning legal action against Sebi’s winding up order

Rating agency, Brickwork Ratings on 8 October termed the winding up order by Securities and exchange board of India (Sebi) as 'shocking' and said the company was considering legal recourses against the regulator's action.

On October 6, Sebi issued a winding up order against the rater, citing multiple lapses in its operations. Sebi asked Brickwork to shut down operations in six months from the date of the order.

“Brickwork Ratings finds the recent allegations to be a shocking development," the company said in a statement.

"Brickwork Ratings is fully cooperating with the authorities to ensure all compliances are satisfactorily met. In parallel, the company is also considering appropriate legal recourse in the matter,” the statement added.

Sebi revoked the licence of the rater following probes jointly conducted with banking regulator, the Reserve Bank of India (RBI). In its order, Sebi cited failure on the part of the rating agency to  "exercise proper skill, care and diligence, while discharging its duties as a credit rating agency".

In the past, the regulator had imposed monetary penalty on raters but revoking permit is first time. There is no precedent to such a move. The market regulator has asked Brickwork Ratings to shut down operations within six months in its order.

What Brickwork said:

In its statement, Brickwork Ratings said it had always taken Sebi’s suggestions pursuant to prior inspections in the right spirit and the company has implemented robust software development to address some of the issues.

“In addition, timely course correction measures have been taken to align with regulatory instructions and industry best practices,” the rating agency said.

“Brickwork Ratings has always striven to ensure compliance to the highest standards in its rating practices with strong internal checks and balances throughout,” it added.

Brickwork is one of the seven SEBI-registered credit rating agencies. Brickwork Ratings has Canara Bank, a leading Public Sector Bank, as its promoter and strategic partner: as per company's website.

The others raters are Crisil, Care, Icra, Fitch, Infomerics Ratings and Acuité Ratings & Research. In September this year, the Supreme Court had allowed Sebi to conclude the proceedings for cancellation of Brickwork Ratings’ licence for allegedly violating various credit rating regulations.

Credit rating agencies are institutions which rate the debt instruments of companies. These ratings are used by investors and companies to take business decisions on a particular corporate.

Among the many lapses of Brickwork Ratings cited by Sebi include delay in recognition of default of NCDs of Bhushan Steel Ltd. by the rating agency even after disclosure of default by the Debenture Trustee (DT) for such Issue.

Another instance is failure to downgrade the rating for the NCD Issue of Gayatri Projects Ltd. to ‘Default’, even after receipt of information from the DT for such Issue, Sebi said.

The markets watchdog further noted that the repeated lapses, noticed across multiple inspections conducted by it, shows that governance changes recommended in earlier inspections, and monetary penalties imposed have "not proved effective or deterred the Noticee (Brickwork Ratings) in addressing very basic requirements of running a CRA. "