Mainak resigns as CARE Ratings chief after Sebi asks for his removal

S B Mainak has resigned as chairman of CARE Ratings, the company said in a stock exchange notification after the market regulator reportedly asked for his removal.

The Securities and Exchange Board of India (Sebi) nudged the rating agency after a forensic report said Mainak had asked his staff to not change the ratings of Infrastructure Leasing and Financial Services (IL&FS), the bankrupt shadow banker, the Economic Times reported on Thursday.

Consultancy firm EY earlier this week gave Sebi a report recording employee statements, WhatsApp messages and call recordings of CARE employees.

Mainak, a former managing director of Life Insurance Corporation, was an independent director and chairman of CARE Ratings. In December, CARE’s managing director and chief executive officer (MD & CEO) Rajesh Mokashi resigned after a whistleblower complaint alleged management interference in ratings of companies, including IL&FS.

In August 2019, Moody’s India arm ICRA sacked its MD & CEO Naresh Takkar after whistleblower allegations.

Sebi, in December, fined CARE, ICRA and India Ratings Rs 25 lakh each for violating regulations on assigning ratings to non-convertible debentures (NCDs) of IL&FS. Sebi rarely asks companies to remove top officials but it has a lot of say when it comes to key appointments at market intermediaries such as stock exchanges, depository participants and credit rating agencies.

Credit rating agencies in focus; CARE Ratings surges 19%, ICRA 10%

Shares of credit rating agencies were in focus with all three listed companies – CARE Ratings, Crisil and Icra rallying up to 19 per cent on the BSE on Tuesday on the back of heavy volumes. The S&P BSE Sensex was down 0.42 per cent at 41,384 points.

CARE Ratings zoomed 19 per cent to Rs 648 in the intra-day trade. The trading volumes on the counter jumped multiple-fold with a combined 2.4 million equity shares, representing 8 per cent of total equity of the company, changed hands on the NSE and BSE so far. On an average, sub 50,000 shares are being traded daily on the counter, the exchange data shows.

Shares of Icra soared 10 per cent to Rs 3,227 an was trading close to its 52-week high of Rs 3,350 touched on January 30, 2019.

Crisil surged 6 per cent to Rs 1,922 on the BSE. It hit an all-time high of Rs 2,070 on December 23, after acquisition of Greenwich Associates. Greenwich is a leading provider of proprietary benchmarking data, analytics and qualitative, actionable insights that helps financial services firms’ worldwide measure and improve business performance.

Most of the credit rating agencies had reported de-growth in their operational revenue during the first half of financial year 2019-20 (FY20). The de-growth in operating revenue mainly reflects the subdued demand for funding from the industrial sector and the continued risk aversion to fund non-banking housing finance companies (NBFCs)/housing finance companies (HFCs).

However, revenue from structured finance ratings has shown a good traction as the NBFCs/HFCs opted for securitisation/direct assignment of their loan pools as they continued to face lower investor appetite for on balance-sheet funding.

The various measures announced by the government to arrest the slowdown in the economy, festive season and expectation of pick up in the consumer demand especially rural demand post-harvest could bode well for the Indian economy during the second half of the fiscal year 2019-20, according to management of CARE Ratings.

Meanwhile, the Reserve Bank of India’s (RBI’s) Financial Stability Report (FSR) has raised concerns about rating shopping among companies.

This comes against the backdrop of instances of indicative ratings given by agencies, for which there are no written agreements. The indicative ratings are also not disclosed on the company websites, Business Standard reported. 

Six states to drive next phase of cement capacity ramp-ups: CARE Ratings

According to report by CARE Ratings, six states will drive the next phase of cement capacity expansion in the next phase.

“Telangana, Andhra Pradesh, Odisha, Rajasthan, West Bengal and Uttar Pradesh are among the key states expected to witness the next-phase of tentative capacity addition of around 120 mtpa (million tonnes per annum) over the next decade”, said the report on the cement sector.

Rajasthan, Karnataka, Madhya Pradesh, Tamil Nadu, Andhra Pradesh and Telangana are among the leading states in terms of installed capacity.

Regionwise, the Southern region led with the highest installed capacity with a share of 33 per cent of all-India capacity, followed by North, East, West and Central regions. Similarly, Rajasthan, Karnataka, Telangana, Madhya Pradesh and Maharashtra are among the states with the highest proven deposits of limestone, the basic raw material required for manufacturing cement.

India is the second largest cement producer after China with an installed production capacity of about 480 mtpa as of FY19. However,India continues to have the lowest per capita consumption at about 210 kg against the world average of 575 kg. In terms of market share and competition in the sector, the top five companies in India accounted for about 48 per cent of the market by installed capacity and about 47 per cent in terms of production in FY19.

“We expect cement production to remain steady with total output expected to grow by 5-7 per cent during FY20. Prices are expected to remain stable. Retail segment demand would be the key to further strengthening of cement prices," the ratings agency said.

Similarly, increased government spending and incentives to housing, especially in the affordable segment (both rural and urban), should lead to steady growth rates for the sector from FY20 onwards. Roads, urban infrastructure and commercial realty, too, would continue to be key demand drivers for cement.

“Among regions, southern and eastern segments would continue to be major regional demand drivers followed by western region," the rating agency said.