Agency gave Deccan top rating as it went on borrowing spree

Credit ratings agency CARE, which has been in business for almost two decades now, claims in its corporate presentation that it provides investors and risk managers timely and insightful opinions. But for the lenders of Deccan Chronicle Holdings Ltd (DCHL), which CARE had been rating for eight years, the credit opinions have hardly helped. In fact, critics are accusing CARE of being clueless about the fortunes of DCHL as it slipped deep into trouble.

As DCHL raised large sums of money — lenders claim the company borrowed in excess of Rs 4,300 crore in the 15 months ending June 2012 — CARE assigned the highest ratings to most financial instruments of the company. The agency continued to maintain the highest rating of A1+ to DCHL's short-term instruments until July 2, 2012, although the Hyderabad-headquartered listed company had already defaulted on short-term debt raised from several lenders almost a week earlier on June 26.

The number of DCHL's lenders in despair is so widespread that, ironically, it has also enveloped Canara Bank, which owns 22.81 per cent of CARE and is its second-largest stakeholder-promoter. Canara Bank lent about Rs 400 crore to DCHL in the last financial year. Another dozen-and-a-half banks and financial institutions are in the same boat.

DCHL defaulted on its short-term non-convertible debentures (NCDs) on June 26, 2012. It took CARE almost a week to revise the ratings. On July 2, it revised the company's long-term bank facilities from AA to B and put it under "credit watch", and short-term bank facilities from A1+ to A4, putting that under "credit watch" as well.

The short-term instruments amounting to Rs 200 crore outstanding were revised from A1+ to D.

"This was one of the rarest case where short-term highest rating was downgraded to D (default grade) within a couple of weeks of re-affirmation," said a brief prepared by a group of lenders for the government.

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