Financial Daily from THE HINDU group of publications
Friday, Jul 16, 2004
Corporate - Corporate Disputes
Rating agencies watching Birla case keenly
Kolkata , July 15
CREDIT rating agencies will follow developments at Birla Buildings with keen interest, their ardour set off by Priyamvada Birla's will and what has occurred since its revelation.
The raters are viewing the unexpected happening as a test case, one that may provide them with a precedent in future.
The agencies are keen to see whether the court cases that are expected to materialise lead to a change in ownership patterns and management styles of the companies in the M.P. Birla group, especially entities like Birla Corporation, the flagship.
"The case is unique in Corporate India, not merely because it involves a strange will written by the head of such a large business family. It is significant because so many other interests seem to be involved as well," said a senior rating agency source on condition of anonymity. Management style, it may be mentioned here, is one of the parameters referred to by the rating community when assessing a corporate that is issuing debt securities. A possible change in ownership is also a critical factor - especially so if such a change somehow impacts on the credit profile of the corporate concerned.
"The situation, in my view, is extremely fluid and can go any way. From what has been reported, a long-drawn legal battle may also follow... we will watch out for such developments," another source observed.
In the heart of the matter lies the ratings assigned to Birla Corporation, the group's No 1 asset. As things stand, rating agency CARE has assessed the company's CP issue. Birla Corp is known to have used the rating from time to time.
As for FDs and NCDs, the ratings are not really relevant at this juncture. For two other companies in the group, Vindhya Telelinks and Universal Cables, the ratings are not in use any longer.
In ordinary circumstances, there would be no question of putting such ratings in the Rating Watch category so early, it is pointed out. This is particularly important here as the management control is not likely to change for the Birla outfit in the near term, it is felt.
The raters will have to ascertain whether management control too will vary by way of developing implications.
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