SEBI notifies circular on Credit Ratings supported by Credit Enhancement (CE)


The Securities and Exchange Board of India on 28th September 2022, has revised the credit enhancement (CE)-rating measures in order to provide enhanced transparency and improved rating process for CE-ratings.

This revised circular shall be applicable to credit ratings of securities that are listed, or proposed to be listed, on a recognized stock exchange, and other credit ratings that are required under various SEBI Regulations or circulars thereunder.

The circular shall be applicable with effect from January 1, 2023, and CRAs shall report on their compliance with this circular (as ratified by their respective board of directors) to SEBI within one quarter from the date of applicability of this circular

In order to bring further transparency and to enable investors to understand the extent of credit enhancement provided by third party/ parent/ Group Company or specified support considerations, the press release for credit ratings, with or without the CE-suffix, backed by specified support considerations shall contain the following disclosures:

Unsupported ratings without factoring in the explicit credit enhancement or specified support considerations, and Supported rating after factoring in the explicit credit enhancement or specified support considerations.

It is reiterated that while assigning such credit ratings, CRAs shall conduct independent due diligence on the nature of specified support consideration and form a definitive internal view / opinion, and, wherever warranted, obtain an independent external legal opinion for ascertaining the strength of the credit enhancement.

Furthermore, for such credit ratings, it is reiterated that CRAs shall verify the documentation related to the specified support considerations to ensure inter alia the following:

  1. The support is unconditional, irrevocable, and legally enforceable till all the obligations of the rated security has been paid to the investors.
  2. CRAs shall undertake independent examination of financial strength of the support provider to ascertain the ability to honour the obligations guaranteed by the support provider.
  3. The support provider has a lower probability of default on a continuous basis, compared with the rated issuer, till the time such ratings are outstanding.

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