COLOMBO (EconomyNext) – Sri Lanka’s Securities and Exchange Commission has halted a planned 3.0 billion rupee bond sale of EAP Broadcasting Company over a grade credit rating issued by Lanka Ratings, which the regulator said was flawed.
SEC said there was a conflict of interest and said the rating process lacked integrity.
"The said conflict of interest arises from having a common director on the respective Boards of Director of both the issuer company and the Credit Rating Agency and two of the Directors of the issuing company being members of the Rating Committee of LRA," the SEC said.
"The Commission was of the view that the integrity of the process adopted by LRA does not appear to support the credibility of the rating."
Preethi Jayawardene, a director of Lanka Rating Agency, is also a director of EBC.
SEC said the EBC bond sale’s June 11 open should be delayed until it is rated by an "independent Credit Rating Agency registered with it.
LRA had been ordered not to issue any rating from March 25 by the SEC, under an SEC decision made on March 10.
LRA issued a ‘BBB’ rating, considered to be in the investment grade, to EBC in March 2015, according to documents filed on the Colombo Stock Exchange. A rating update had been issued dated, March 23.
There had been concerns raised about possible ‘rating shopping’ after several companies which were downgraded by Fitch moved to LRA.
LRA was originally set up by RAM of Malaysia, but the foreign partner exited the firm.