SEBI DEBT RATING NORMS

SEBI DEBT RATING NORMS

Subject : Economics

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

Concept :

• 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.
• 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.
• 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.

Provisional Rating

• A bond rating that is subject to change based upon certain conditions. For example, if the project a bond was intended to finance is completed and begins generating revenue, a provisional rating is likely to increase.
• On the other hand, if an issuer’s debt reaches too high a level, a provisional rating is likely to decrease. It is also called a conditional rating.