CSE-SEC talks on making double ratings mandatory for listed debt
The Colombo Stock Exchange (CSE) is in talks with the Securities and Exchange Commission (SEC) on making two ratings mandatory for debenture issues, sources said.
“We are seriously contemplating changing the rules of debt listings. As a start we want companies issuing debentures to get two ratings (from two agencies). This is done internationally and we want to implement it here,” a CSE source told the Business Times.
This comes on the back of withdrawal of mandates and approaching fresh credit ratings from other agencies with higher credit ratings. A case in point is listed debt. “The concern here is the hurdle (the minimum) rate of BBB with which one cannot list debt or existing debt would have to be de-listed (as per existing CSE rules) in case of a downgrade,” an industry official said. He added that the risk here is that relatively lower credit quality gets access to listed securities market and access to wholesale financing putting greater systemic risk in the market. The CSE in 2013 announced a series of amendments to listing rules stamping it mandatory for debt issues to obtain ratings one notch above investment grade.
As such all debt issuances must carry a minimum credit rating of one notch above the investment grade.
The CSE source said that two ratings are better than one. “It at least places checks and balances. Most developed and regional markets follow that practice.”