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Nine trading sessions in August shaved off 23.5 per cent or Rs 904 crore of investor wealth in Opto Circuits.
This could have been avoided had the company or the rating agency (both being listed) had disclosed to the exchanges that they had parted ways immediately.
On August 9, ICRA downgraded its long-term rating of Opto Circuits’ Rs 538-crore working capital facility. It also suspended its rating for want of requisite information from Opto Circuits.
On August14, Opto in a statement on its Web site said that ICRA’s services were disengaged effective July 4 and that the limit was for its standalone entity for FY11 and not FY12.
ICRA had drawn on its consolidated business dynamics to explain the business of the standalone entity, it said. Stock exchanges had not been informed until then.
On August 23, Opto Circuits informed the bourses of the disengagement with ICRA, effective July 4 and appointment of Crisil.
On the same day, Opto Chairman Vinod Ramnani said Opto’s financial health was strong and business prospects bright. Letters of confidence from lender-banks — Standard Chartered, DBS, IDBI and IndusInd — were put out on the company Web site.
Stock exchange listing agreements only mandate immediate dissemination of information that are price sensitive and have a material impact on the companies. However, there is no clarity on the deadline to furnish information on what is not materially significant.
While the NSE did not respond, the BSE did not want to comment.
Under SEBI guidelines, a rating agency is required to continuously monitor securities rated by it and carry out periodic reviews. If the company does not co-operate, the agency should inform investors using available information.
“In an event, the issuer’s agreement with the CRA terminates as a result of which the future rating reviews of the security become unsolicited, the revised credit rating symbol needs to be accompanied by the word ‘Unsolicited’,” said Tejesh Chitlangi of Finsec Law Advisors.
ICRA’s August 9 rating did not specify ‘Unsolicited’.
Naresh Takkar Managing Director, ICRA, said “It was initially a solicited rating. We are committed to continue with the rating. The company is not providing further data to us. We have suspended the rating.”
Market experts said this has raised two important questions. The first, should there be gardening or cooling off period for CRAs disengaged by their clients. And, how long should it be?
The second is what should be the maximum time for companies to make an exchange filing.
> raghavendrarao.k@thehindu.co.in
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