Update: Indian court blocks Fitch downgrade

2 min read

Fitch said on Tuesday it had received an order from the Calcutta High Court, dated March 20, preventing it from publishing a rating action on SREI.

Court documents showed that Fitch was ordered to state: “Fitch has received an order from the Hon’ble High Court of Calcutta dated March 20, 2012 pursuant to which Fitch India has been restrained from publishing a rating action with regard to SREI Infrastructure Limited. Fitch is therefore unable at this time to publish a current rating on the issuer.”

Neither the rating agency nor the issuer would elaborate on the matter, citing the ongoing legal proceedings. However, sources said the rating agency had earlier told SREI it planned to downgrade the firm.

The injunction is the most extreme reaction for years to an unwelcome rating move, and raises questions over the rating industry’s ability to provide free and independent advice.

SREI said in a statement on Wednesday: “There has been long protracted dispute for (the) last one year between the parties resulting (in) the matter taking a legal shape. Since the matter is sub-judice, it would not be possible for us to comment on this matter any more.”

Many companies – even governments – have in the past threatened to sue over downgrades they deemed undeserved, but few have succeeded in winning an injunction against a rating move.

Allco Commercial Real Estate Investment Trust obtained a High Court order in Singapore in March 2008 to stop Moody’s from announcing its decision to downgrade Allco Reit’s rating. The injunction even prevented Moody’s from holding any meeting or discussion to review Allco’s credit rating. That order, however, was lifted days later after Moody’s protested that it prevented it from keeping its clients informed.

SREI’s injunction, believed to be unprecedented in India, brings the rating industry’s business model again under scrutiny. Rival rating agencies have been quick to warn that the court order sets a dangerous precedent for credit ratings in India – if not for the wider world.

(*Updates from previous version, adding reference to the court documents and the SREI statment)

A plaque is pictured at the entrance of the Fitch offices in downtown Milan