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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers

Kaveri Infra Ltd issued non-convertible debentures rated 'AA' by a SEBI-registered credit rating agency. Six months later, the agency's analysts see weaker cash flows and the company's debt service coverage falls sharply. From a gatekeeper perspective, what should the agency do?

The agency should review the rating under its surveillance process and downgrade it if the weakened cash flows warrant, publishing the change for investors. Gatekeepers must keep ratings current; waiting for a new issue, silent withdrawal or requiring issuer consent would defeat investor protection.

  1. AKeep the rating unchanged until the next debenture issue
  2. BReview the rating and, if warranted, downgrade it through ongoing surveillance, publishing the actionCorrect
  3. CWithdraw the rating silently without informing investors
  4. DSeek the issuer's consent before any downgrade can be published

Explanation

Rating agencies must carry out continuous surveillance of ratings and revise them when credit quality changes, disseminating the action publicly. Waiting for a new issue or needing issuer consent defeats the purpose of the gatekeeping role. Silent withdrawal hides information from investors.

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