Edelweiss files petition in the Bombay High Court to restrain downgrade rating by ICRA

Edelweiss Financial Services moved the Bombay High Court and filed a writ petition seeking to restrain ICRA Ltd. from downgrading its debt. According to sources, the rating agency is likely to downgrade the Edelweiss by a notch to A-plus.

As of June 2019, Edelweiss was given an AA-minus rating – high degree of safety regarding timely servicing of financial obligations and carry a very low credit risk – by ICRA.

In the June 2019 note by ICRA, it has been mentioned that ICRA had taken a consolidated view of the Edelweiss group, given the close linkages between the group entities, common promoters and senior management team, shared brand name, and strong financial and operational synergies.

The rationale for the ratings downgrade according to sources was based on ICRA’s apprehension about the impact of Covid-19 on the financial services firm. Edelweiss has not shared the complete information due to the lockdown and has sought an additional two-three weeks to furnish information, including its financial health based on the relaxation and relief provided by the government and the Securities and Exchange Board of India (SEBI).

The annual review by ICRA is yet to be released and is being challenged in the court.

The SEBI relaxed norms in March asking credit rating agencies not to consider any delay in payment of interest or principal loan amount as default which would have arisen solely due to the nationwide lockdown conditions. The move follows a three-month moratorium on payment permitted by the Reserve Bank of India (RBI) to mitigate the burden of debt servicing due to disruptions caused by the coronavirus pandemic and to ensure continuity of viable businesses.

SEBI also allowed rating agencies a 30-day relaxation to put up annual and semi-annual ratings actions, given difficulties in getting information from the issuers and third parties.

A rating downgrade may have a significant impact at this time on access to capital for the Edelweiss group. This move could lead to accelerated payments and raise the cost of borrowings from banks. That makes it difficult for the instruments of the company to participate in the targeted long-term repo operations announced by the RBI. Currently, banks are largely participating in AAA and AA category instruments of non-bank lenders.