How to Check a Rating Withdrawal in India

A rating withdrawal is the one rating action that leaves nothing behind to monitor, which is exactly why it is worth checking carefully. A rating agency cannot simply stop covering a security. SEBI requires conditions to be met first, a final rating to be assigned on the way out, and a press release that states why. This page sets out where a rating withdrawal is disclosed, what conditions the agency had to satisfy, and the statistical quirk that makes withdrawals easy to misread.

Where is a rating withdrawal disclosed?

In a press release on the CRA's own website, in a prescribed format. Paragraph 12.2 of the Master Circular for Credit Rating Agencies requires that at the time of withdrawing any credit rating of securities that are listed or proposed to be listed, and other ratings required under SEBI regulations or circulars, the CRA shall assign a rating to such security and issue a press release in the format at Annexure 13 of the circular. The press release must also mention the reasons for withdrawal.

There is one exception to the assign-a-rating part. Where there are no outstanding obligations under the security, or the company whose security is rated is wound up, merged or amalgamated with another company, the CRA shall not assign any rating.

So a properly disclosed withdrawal gives a reader three things: a final rating, a stated reason, and a dated press release.

What conditions had to be met before the withdrawal?

This is where most of the substance is. The permitted route depends on how many ratings the security carried.

The perpetual debt provision exists for a practical reason SEBI states outright: under the general rule a rating on a perpetual instrument could not be withdrawn unless the security was redeemed, which often led issuers of such bonds to stop cooperating with the CRA.

How to check a rating withdrawal, step by step

1. Find the press release, not the rating table. A rating table shows the current state. The withdrawal press release is what carries the reason and the final assigned rating. It is on the CRA's website under its rating actions or press releases.
2. Read the reason. The circular requires it to be stated. "Withdrawn at the issuer's request" and "withdrawn on redemption of the instrument" are very different facts.
3. Check whether a rating was assigned on exit. If none was, the security should have no outstanding obligations, or the company should have been wound up, merged or amalgamated. If neither is true, the disclosure is incomplete.
4. Match the withdrawal against the permitted route. Count how long the CRA rated the security and whether other ratings existed. A withdrawal after two years on a singly-rated ten year bond does not fit paragraph 12.3.
5. Confirm the replacement rating exists. Every route except the wound-up case turns on an undertaking that another rating is available. Look for the other CRA's press release on the same ISIN.
6. Check the rating transition history. A press release relating to a review must carry the rating transition history of all securities of that issuer rated by that CRA over the past 3 years, whether or not currently outstanding.

Why withdrawals distort a rating agency's stability statistics

Two disclosure regimes treat a withdrawn rating differently, and the difference matters if you are comparing CRAs.

• Default rate computation. Default rates may be adjusted for rating withdrawals, and for securities the rating is included in the computation till the completion of the cohort or the maturity of the instrument, whichever is earlier. So a withdrawal does not immediately remove the security from the default maths.
• Rating transition matrix. The static pool is defined as ratings outstanding for each category at the start of a financial year, and it excludes ratings that have been withdrawn or ratings of non-cooperative issuers during that year.

A CRA's transition matrix, in other words, is computed over a pool that has had its withdrawals taken out. SEBI addressed the parallel problem for non-cooperative issuers directly, noting that excluding INC ratings might not depict a true picture of stability within and across CRAs, and requiring two additional transition matrices. When you read a stability number, read the pool definition under it. The default side of the same question is covered in how to check a rating default study.

A withdrawal is not an INC rating, and not a cancelled agency

Three things get conflated:

• A withdrawal ends the rating on the conditions above.
• An INC rating is a live rating flagged for issuer non-cooperation. Beyond 6 months of non-cooperation the CRA downgrades it to non-investment grade with INC status, and no CRA may assign a new rating to an issuer non-cooperative with all CRAs for 12 continuous months until it resumes cooperation or the rating is withdrawn.
• A cancelled, suspended or surrendered CRA registration produces a deemed withdrawal: the ratings assigned by that CRA are treated as withdrawn once the issuer furnishes an undertaking that another SEBI-registered CRA's rating is available, with that CRA's confirmation, and the outgoing CRA still issues the Annexure 13 press release.

For the ordinary case of a rating that changed rather than ended, the tracking route is how to check credit rating revisions, and the difference between a rating action and a signal about one is in rating outlook vs rating watch. Where the rating was in default and came back, the timing is governed by the post default curing period.

So to check a rating withdrawal properly: find the press release, read the stated reason, confirm a final rating was assigned, test the withdrawal against the route the security's rating count allows, and verify the replacement rating actually exists.

Flock reports the filings themselves, each one dated and linked to its source. What any disclosure means for your money is your call to make. Not investment advice.