Grant Thornton On Credit Rating Agencies

Project Icarus: Draft update pertaining to observations relating to Credit Rating Agencies
Please note that the draft update covers observations relating to the ratings provided by the credit rating agencies to
Infrastructure Leasing & Financial Services and its group companies. Also, the said draft update is subject to
disclaimers and limitations stated in the relevant section of the draft update.
12 July 2019
Private and confidential
Draft for discussion purpose only
©2019 Grant Thornton India LLP. All rights reserved.

Contents of the draft update
# Particulars Page No.
1 Limitations and Disclaimers 3
2 Overview of IL&FS: Background, Context, Objectives and Scope of work 6
3 Overview of Credit Rating Agencies 9
4 Approach and Methodology 17
5 Details about individuals and distribution list mentioned in email conversations 20
Summary of Observations 25
6 Detailed Observations 44
7 Glossary 103
2 ©2019 Grant Thornton India LLP. All rights reserved. Private and confidential, draft for discussion purpose only
Limitations and Disclaimers
3 ©2019 Grant Thornton India LLP. All rights reserved.

Limitations and disclaimers to the draft update:

 The draft update issued is to be read in totality, and not in parts, and in conjunction with the relevant sections referred to in this document.
 The scope of the draft update was limited to the findings noted with regards to the ratings provided by the Credit Rating Agencies (‘Rating Agencies’ or ‘CRA’).
 Since this is a draft update, we have not taken any clarifications from the key representatives of Infrastructure Leasing & Financial Services (‘IL&FS’) group and have
prepared it based on our understanding and assumptions.
 While Grant Thornton India LLP (‘Grant Thornton’ or ‘Firm’ or ‘us’ or ‘our’ or ‘we’) have taken reasonable steps to corroborate the information obtained, we cannot
guarantee its reliability or completeness. For these reasons, this draft update should be used for guidance purposes only. It should not form the sole basis for any
decision as to a potential course of action without independent confirmation of its findings; nor should it be relied upon as preferred advice.
 All the amounts stated in the draft update are updated in Indian Rupees (‘INR’) and for simplicity, purpose is represented in crores (‘crs’) unless stated otherwise.
Limitations and disclaimers to the scope of work and procedures performed by us:
 We have prepared this draft update based on the limited procedures performed during the period 20 June 2019 to 08 July 2019.
 The draft update issued by us is in accordance with the Engagement Letter dated 28 January 2019 (‘EL’) which is strictly confidential and for use by the Audit
Committee of IL&FS Group (‘AC’ or ‘Client’) for the purpose specified in the EL. The draft update and other deliverables may not be used, reproduced or circulated for
any other purpose, whether in whole or in part, other than mentioned in the EL.
 We have relied on the information and explanations provided to us by the key representatives of the IL&FS Group and we have not independently verified the same.
Hence, our ability to perform all the procedures depended on the nature and quality of the information and explanations provided to us by the key representatives of the
IL&FS Group. We are only able to review those emails where official email ids have been used for communication.
Limitations and disclaimers to the public domain searches conducted by us:

 All the public domain searches conducted in the databases and search engines on the name of the individuals and entities have been performed to the best of our
efforts.
 In India, information about individuals/entities is not captured and stored in an organised manner or a centralised database. The information is collated from third
parties/various secondary information sources available in the public domain. Accordingly, the factual accuracy of such information cannot be guaranteed. We have
referred to the information available on the public domain as on the date of the research and have presented information accordingly. It is to be noted that some of
these databases are not updated regularly.
 Although the information may have been gathered from online public record information which is generally accepted to be accurate, we cannot guarantee its veracity;
nor can we monitor the speed with which these public record sources update their records. In undertaking the public record research and information gathering on this
Engagement, we have identified information currently available. We may not have identified information previously filed on but subsequently removed from the public
record prior to this date nor will we have identified information subsequently filed on those data sources after this period in which our work has been completed. In
undertaking the public domain searches and information gathering, efforts were made to identify information currently available.
General limitations and disclaimers to the draft update:

 The scope of our services does not constitute an audit conducted in accordance with generally accepted auditing standards, or an examination of internal
controls/procedures or other attestation or review services or services to perform agreed-upon procedures in accordance with standards established by the Institute of
Chartered Accountants of India. The services also do not involve the expression of any opinion or any other form of assurance, concerning any matters as a result of
the performance of our services.
 No representation or warranty, whether express or implied, is given by us with regard to our review or scope of work. Where this update is provided to someone not
allowed as per the EL, we accept no liability (including negligence) to anyone in connection with it.
 Our work does not make any representation regarding questions of legal interpretation and cannot render legal advice. The Client should consult with its attorneys with
respect to any legal matters or items that require legal interpretation including Indian laws, rules or regulations.
 Our services and our draft update are not intended to be, and shall not be construed to be, investment advice or legal, tax or accounting advice.
Overview
Background, Context, Objectives and Scope of work

Background about IL&FS Group:

 IL&FS Group is an Indian infrastructure development and finance company which was founded in 1987 with equity from Central Bank of India (‘CBI’), Unit Trust of India
(‘UTI’) and Housing Development Finance Corporation Limited (‘HDFC’) to fund infrastructure projects. Its central mandate is catalysing the development of innovative,
world-class infrastructure in India. IL&FS Limited is a core investment company and serves as the holding company of IL&FS Group.
 IL&FS has institutional shareholders including Life Insurance Corporation of India (‘LIC’), ORIX Corporation of Japan (‘ORIX’) and Abu Dhabi Investment Authority
(‘ADIA’) and State Bank of India (‘SBI’). As per the published financial statement of IL&FS Limited as on 31 March 2018, LIC and ORIX are the largest shareholders in
IL&FS Group with their shareholding at 25.34 % and 23.54%, respectively. The other prominent stakeholders include ADIA (12.56%), HDFC (9.02%), CBI (7.67%) and
SBI (6.42%). As on 31 March 2018, IL&FS Group operates with at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures, and four associate
companies and has a debt of approximately INR 91,000 crs.
 Key areas of the Balance sheet of Consolidated Financial Statement of IL&FS Group as on 31 March 2018:
Key areas of Liabilities Amount Key areas of Assets Amount

(INR in crs) (INR in crs)
Borrowings 91,091 Fixed assets 51,297
Other liabilities * 15,392 Other assets * 26,907
Shareholder funds and minority interest 9,331 Loans and advances 20,301
Cash and cash equivalent 10,647
Investments 6,662
Grand Total 1,15,814 Grand Total 1,15,814
1. Other assets include receivables against service concession arrangements, goodwill on consolidations, deferred tax assets, other non-current assets, trade
receivables, other current assets.
2. Other liabilities include long term provisions, trade payables, other current liabilities, short term provisions.
Context of the special audit:

 As per media updates, the IL&FS Group, which has over approximately INR 91,000 crs in debt and is facing a severe liquidity crisis. During the period July 2018 to
September 2018, two of the subsidiaries of the IL&FS Group updated having trouble in paying back loans and inter-corporate deposits to Banks /Lenders. In July 2018,
the road arm of IL&FS was facing difficulty in making repayments due on its bonds. Further, in early September 2018, one of the subsidiaries of the IL&FS Group was
unable to repay a short-term loan of INR 1,000 crores taken from Small Industries Development Bank of India (‘SIDBI’). Also, certain group companies have defaulted
in repayments of various short and long-term deposits, inter-corporate deposits, and commercial papers.
 Based on the directions issued by the Honorable National Company Law Tribunal – Mumbai (‘NCLT’) on 01 October 2018, a new Board of Directors (‘BoD’) was
reconstituted under the chairmanship of Uday Kotak.
 Given the backdrop, the reconstituted Audit Committee of IL&FS Group on behalf of the BoD appointed Grant Thornton India LLP via. Engagement letter dated 28
January 2019 to conduct a special audit for all high-value transactions undertaken by IL&FS Limited and few of its group companies for the period commencing from 01
April 2013 to 30 September 2018 (‘Review Period’ or ‘review period’).
Objectives of the special audit:

Based on the EL, the objectives of the assignment as approved by the Audit Committee, was as follows:
 Identify siphoning and/or misuse of funds, suspect transactions, and fraudulent transactions; and
 Further, if siphoning and/or misuse of funds, suspect transactions and fraudulent transactions are identified then:
 Identify the modus operandi;
 Identify and fix the responsibility; and
 Quantify the financial loss suffered
Objective of this report:

Based on the discussion with the key management of the IL&FS group, we were instructed to provide our findings pertaining to ratings provided by Credit Rating Agencies
(‘CRA’).
Overview : Credit Rating Agencies
Background and context of Credit Rating Agencies

Background on Rating Agencies:

 A rating agency is a company that assesses the financial strength of companies and government entities, especially their ability to meet principal and interest payments
on their debts.
 The rating assigned to a given debt by a rating agency shows it's level of confidence that the borrower will honor its debt obligations as agreed. Rating Agencies
perform an analysis of the credit risks associated with a financial instrument or a financial entity. A rating is assigned to an instrument by a rating agency after a
comprehensive analysis of business risks, financial risks, management quality and ability to service the debt of the borrower.
 Ratings can be assigned separately to short-term and long-term obligations. Long-term rating analysis is done to assess the company's ability to meet its
responsibilities with respect to all of its securities issued. Short-term rating is focused on the specific securities' ability to perform given the company's current financial
condition and general industry performance conditions.
 Each agency uses unique letter-based scores to indicate if a debt has a low or high default risk and the financial stability of the company.
Requirements/benefits of companies obtaining ratings:
 Regulatory / Contractual requirement: Various parties such as financial institutions may require credit rating from rating agencies as a part of their business
requirement.
 Benefit of a lower rate of interest: One of the major factors taken into consideration while determining the rate of interest for a loan facility is rating assigned by a
rating agency. Generally, the higher the credit rating, the lower is the rate of interest provided to the company.
 Better investment decision: With a credit rating, investors get an idea about the creditworthiness of the company (who is borrowing the money) and the risk factor
attached to them. By evaluating this, investors can make a better investment decision.
 Safety: High credit rating means an assurance about the safety of the money and that it will be repaid with interest on time.
 A wider audience for borrowing : A company with a highly rated instrument can approach the investors extensively for the resource mobilization using the press
media. Investors in different strata of the society could be attracted by the higher-rated instrument as the investors understand the degree of certainty about timely
payment of interest and principal on a debt instrument with a better rating.
 Rating as a marketing tool: Companies with rated instrument improve their image and avail of the rating as a marketing tool to help to create a better image in
dealing with its customers.
Details on rating rationale:

 A rating rationale provides a basic or underlying reason or explanations on account of which the rating has arrived. A rationale brief comprises of the following :
 Background of the Company;
 Recent developments & scenarios;
 Performance update;
 Key rating factors (both positive and negative);
 Commentary on various factors concerning the company, and
 Business and Financial risk profile.
Rating symbols used by Rating Agencies:

 A credit rating is an evaluation of the credit risk of a borrower, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the borrower
defaulting. The major credit rating agencies registered under Securities Exchange Board of India (‘SEBI’) and appointed by IL&FS group are Credit Rating Information
Services of India Limited (‘CRISIL’), CARE ratings Limited (‘CARE’), ICRA Limited (‘ICRA’), India Ratings and Research Private Limited (‘India Ratings’) (A Fitch Group
Company), Brickwork Ratings India Private Limited (‘Brickwork’) etc. The below table provides details of the rating symbols used by the credit rating agencies for long
term debt instruments:
Rating Scale for Long Term Debt Instruments: All bonds, Non-convertible CRISIL CARE ICRA India Ratings and BrickWork
debentures, other debt instruments (excluding public deposits) with an Research Ratings
original maturity exceeding one year
Highest Safety: Instruments with this rating are considered to have the highest CRISIL AAA CARE AAA ICRA AAA IND AAA BWR AAA
degree of safety regarding timely servicing of financial obligations. These
instruments carry the lowest credit risk
High Safety: Instruments with this rating are considered to have a high degree CRISIL AA CARE AA ICRA AA IND AA BWR AA
of safety regarding timely servicing of financial obligations. These instruments
carry very low credit risk.
Low Risk: Instruments with this rating are considered to have an adequate CRISIL A CARE A ICRA A IND A BWR A
degree of safety regarding timely servicing of financial obligations. These
instruments carry low credit risk.
Moderate Safety: Instruments with this rating are considered to have a CRISIL BBB CARE BBB ICRA BBB IND BBB BWR BBB
moderate degree of safety regarding timely servicing of financial obligations.
These instruments carry moderate credit risk.
Moderate Risk: Instruments with this rating are considered to have a moderate CRISIL BB CARE BB ICRA BB IND BB BWR BB
risk of default regarding timely servicing of financial obligations.
High Risk: Instruments with this rating are considered to have a high risk of CRISIL B CARE B ICRA B IND B BWR B
default regarding timely servicing of financial obligations.
Very High Risk: Instruments with this rating are considered to have a very high CRISIL C CARE C ICRA C IND C BWR C
risk of default regarding timely servicing of financial obligations.
Default: Instruments with this rating are in default or are expected to be in CRISIL D CARE D ICRA D IND D BWR D
default soon.
 Plus and minus symbols are used to indicate finer distinctions within a rating category. The “-” symbol associated with ratings does not have any negative connotations.
Ratings with double letter and negative symbol is a better rating than ratings with a single letter and a positive symbol. Example: “AA-” is better rating than “A+”.
Rating symbols used by rating agencies: (Cont’d)

 The below table provides details of the rating symbols used by the credit rating agencies for short term debt instruments:
Rating Scale for Short Term Debt Instruments : All instruments with CRISIL CARE ICRA India Ratings and BrickWork
original maturity within one year Research Ratings
Lowest Credit Risk: Instruments with this rating are considered to have a very CRISIL A1 CARE A1 ICRA A1 IND A1 BWR A1
strong degree of safety regarding timely payment of financial obligations. These
instruments carry the lowest credit risk.
Low Credit Risk: Instruments with this rating are considered to have a strong CRISIL A2 CARE A2 ICRA A2 IND A2 BWR A2
degree of safety regarding timely payment of financial obligations. These
instruments carry low credit risk.
Instruments with this rating are considered to have a moderate degree of safety CRISIL A3 CARE A3 ICRA A3 IND A3 BWR A3
regarding timely payment of financial obligations. Such instruments carry higher
credit risk as compared to instruments rated in the two higher categories.
Instruments with this rating are considered to have a minimal degree of safety CRISIL A4 CARE A4 ICRA A4 IND A4 BWR A4
regarding timely payment of financial obligations. Such instruments carry very
high credit risk and are susceptible to default.
Instruments with this rating are in default or are expected to be in default on CRISIL D CARE D ICRA D IND D BWR D
maturity.
 Plus and minus symbols are used to indicate finer distinctions within a rating category. The “-” symbol associated with ratings does not have any negative connotations.
Ratings with double letter and negative symbol is a better rating than ratings with a single letter and a positive symbol. Example: “AA-” is better rating than “A+”.
Rating Agencies associated with the IL&FS Group:

 During our review, it was noted that the IL&FS Group had availed rating services from the following rating agencies :
 CRISIL Limited (formerly known as Credit Rating Information Services of India Limited);
 CARE Ratings Limited (formerly known as Credit Analysis and Research Limited);
 ICRA Limited;
 India Ratings and Research Limited (A Fitch Group company), and
 Brickwork Ratings India Private Limited.
Key Managerial Personnel of Rating Agencies:

 Based on public domain searches, the below table provides details of the Key Managerial personnel (‘KMP’) of the Rating Agencies :
# Rating Agencies Name of the KMP Designation
1 CRISIL Ashu Suyash Managing Director & Chief Executive Officer (2015 - present)
2 CRISIL Rupa Kudva Former Managing Director & Chief Executive Officer (2007 - 2015)
3 CARE Rajesh Mokashi Managing Director (June 2017 - present)
4 ICRA Naresh Takkar Managing Director (2006 - present)
Group Chief Executive Officer (2011 – present)
5 ICRA Anjan Deb Ghosh Executive Vice President and Chief Rating Officer (2013 - present)
6 India Ratings and Research Atul Ravishanker Joshi Former Managing Director & Chief Executive Officer (2011 - 2016)
7 India Ratings and Research Ananda Bhoumik Managing Director and Chief Analytical Officer (August 2015 - Present)
(Associated with Fitch Group since 2001)
8 India Ratings and Research Rohit Karan Sawhney Managing Director & Chief Executive Officer (April 2017 - present)
9 Brickwork Ratings Vivek Kulkarni Founder and Managing Director (Associated with Brickworks Ratings
since 2004 – present)
10 Brickwork Ratings D Ravishankar Founder and Erstwhile Managing Director (Associated with Brickworks
Ratings since 2009 – present)
Facilities availed by IL&FS Group on which ratings were assigned:

 Based on public domain searches and our review, it was noted that IL&FS Group had availed various instruments/loans (i.e. financial facilities) for which ratings were
assigned by the Credit Rating Agencies. The details of the instruments which were rated by the CRA were as follows :
 Long term loans / Fund based term loans;
 Convertible / Non-Convertible Debentures;
 Convertible / Non-Convertible Preference shares;
 Bonds;
 Subordinate Debt;
 Short term loans;
 Cash credit facilities;
 Commercial papers, and
 Bank guarantee, etc.
Details of ratings obtained by Credit Rating Agencies
Basis our public domain search, we noted from the year 2011 to 2019, following are the number of times rating agencies have provided ratings to IL&FS Transportation
Networks Limited (‘ITNL’), IL&FS Financial Services Limited (‘IFIN’) and IL&FS Limited. Further analysis indicates that majority of the ratings were provided by CARE.
 Ratings provided/modified by rating agencies for ITNL:
# Rating Agency / Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
1 CARE - 3 6 2 16 20 6 22 4 79
2 ICRA - 4 7 6 6 - 8 18 - 49
3 India Ratings - - 1 4 6 3 16 7 37
4 Brickwork - - - - - 1 4 13 - 18
5 CRISIL 5 3 6 - 3 - - - 17
Total 5 10 14 18 28 27 18 69 11 200
 Ratings provided/modified by rating agencies for IFIN:
1 CARE 4 8 1 5 3 10 13 21 - 65
2 India Ratings - - - 3 - 4 6 12 - 25
3 ICRA - 2 - 1 1 2 2 5 - 13
4 Brickwork - - - - - - 1 4 - 5
Total 4 10 1 9 4 16 22 42 - 108
 Ratings provided/modified by rating agencies for IL&FS Limited:
1 CARE - 4 1 6 9 7 13 21 - 61
2 ICRA - 5 1 3 2 2 4 13 - 30
3 India Ratings - - 3 3 4 2 5 13 - 30
Total - 9 5 12 15 11 22 47 - 121
Approach and methodology

In order to achieve the objectives stated in the section ‘Overview of IL&FS: Background, Context, Objectives, and Scope of work’, following were the indicative work
procedures conducted:
Gathering information and discussions with the key representatives of IL&FS Group:
 We conducted discussions with the key representatives of the IL&FS Group to understand and obtain details with regards to ratings assigned to the facilities availed by
IL&FS and its group entities, the process of getting the facilities rated and the rating agencies involved in the said process. Based on the documentation and
understanding obtained from the key representatives of the IL&FS Group, we obtained the details of facilities rated by CRAs and rating letters issued by them to the
IL&FS and its group companies.
Review of the ratings assigned to the instruments via. public domain searches:
 Based on our public domain searches, we extracted details of ratings provided by the Credit Rating Agencies for IL&FS Limited, ITNL, and IFIN.
 We conducted trend analysis on the ratings issued to the above entities in order to identify any unusual patterns.
 We reviewed the rating letters to check whether the final rating tallies with the draft rating identified in the emails.
Digital forensic review exercise (Emails and user file review):
Identification of the Targets
 Based on the discussion with key representatives of the IL&FS Group, we prepared a list of primary suspects (‘Targets’) whose electronic communication we wanted to
review. The list prepared below was based on our discreet discussions with the key representatives of the IL&FS group and understanding of the role of individuals in
obtaining a rating from Credit Rating Agencies.
# Name # Name
1 Ravi Parthasarthy 7 Rajesh Kotian
2 Hari Sankaran 8 Sujoy Das
3 Ramesh Bawa 9 Dilip Bhatia
4 Arun Saha 10 Shaivali Parekh
5 K Ramchand 11 Danny Samuel
6 Mukund Sapre
Digital forensic review exercise (Emails and user file review):

 We were provided with electronic devices (laptops, desktops, tablets, and mobile phones) used by some of the Targets. These electronic devices were provided by the
representatives of the IL&FS Group.
 We conducted the disk imaging procedures on the electronic devices provided and extracted mails/user files. Further, we also extracted mails from the email server.
 Based on our understanding and background of the case, we prepared a list of keywords.
 We reviewed those emails and user files which had the identified keywords and identified unusual emails.
Reporting:
 Based on the observations noted from various procedures stated above, a draft update summarizing the findings follows.
Details about individuals and distribution list mentioned in email conversations

# Name of the Individuals Designation / Position

1 Abhishek Dafria Employee of ICRA Limited
2 Ajay Menon Employee of ITNL
3 Ajay Vaidyanath Employee of ITNL
4 Amaan Elahi Employee of ICRA Limited
5 Ambreesh Srivastava Head of Financial Institutions - South and Southeast Asia of Fitch Ratings
6 Amit Sachar Employee of Unitech Limited
7 Ananda Bhoumik Managing Director and Chief Analytical Officer of India Ratings and Research Private Limited
8 Anita Ferreira Employee of IL&FS
9 Annapurna Ramesh Employee of IL&FS
10 Arun K Saha Former Joint Managing Director and Chief Executive Officer of IL&FS Limited
11 Ashvini Patil Employee of CARE Ratings Limited
12 Bharati Parwari Former Assistant Vice President in IL&FS Financial Services Limited
13 Chandrakant Jagasia Employee of IL&FS
14 D Ravishankar Founder & Director of Brickwork Ratings India Private Limited
15 Danny Samuels Employee of ITNL
16 Deepak Chaudhary Employee of L&T Financial Services Limited
17 Dheeraj Kumar Employee of IL&FS
18 Dilip Bhatia Employee of ITNL
19 DN Ghosh Chairman Emeritus, ICRA
20 Fanous Terry Employee of Moodys Group
21 Gaurav Mashalkar Employee of ICRA Limited
22 George Cherian Former Chief Financial Officer, ITNL
23 Hari Sankaran Former Vice Chairman and Managing Director of IL&FS Limited
24 Hemant Thanvi Employee of IL&FS
25 Jagdish Kumar Employee of IL&FS
26 Jain Amitabh Employee of IL&FS
27 Jasmeet Matoo Employee of IL&FS
28 Jaspreet Datta Employee of IL&FS
29 Jignesh Shah Employee of IL&FS

30 Jyotsana Srivastava -
31 Kang Mic Employee of Moodys Group
32 Karthik Srinivasan Employee of ICRA Limited
33 Kishore Gandhi Chief Credit Officer of India Ratings & Research Private Limited
34 Kush Ahuja Employee of Unitech Group
35 KV Sawant Employee of IL&FS
36 Lalita Jagtiani Employee of IL&FS
37 Lubna Usman Employee of IL&FS
38 Madan Mohan Employee of ITNL
39 Maharudra Wagle Group Chief Financial Officer of IL&FS Limited
40 Mahesh Prabhu Employee of CARE Ratings Limited
41 Manish Agal Employee of IL&FS
42 Manish Chourasia Employee of IL&FS
43 Manish Singla Employee of Unitech Group
44 Manoj Agarwal Employee of ITNL
45 Manu Kochhar Former CEO Special Initiatives of IL&FS and Former group Chief Financial Officer of IL&FS Limited
46 MD Khatter Employee of IL&FS
47 Meenakshi Kanagat Employee of IL&FS
48 Melita Pereira Employee of IL&FS
49 Milind Gadkari Employee of CARE Ratings Limited
50 Milind Naik Employee of IL&FS
51 Milind Patel Employee of IL&FS
52 Mukund Sapre Former Managing Director of IL&FS Engineering and Construction Company Limited, Former
Executive Director of ITNL
53 Naresh Sasanwar Employee of IL&FS
54 Naresh Takkar Managing Director and Group CEO of ICRA Limited
55 Pankaj Chandak Employee of IL&FS
56 Piyush Nimagaonkar Employee of CARE Ratings Limited
57 Piyush Nimgaonkar Employee of CARE Ratings Limited
58 Prakash Agarwal Employee, Fitch Ratings
59 Pratik Jain Employee of ICRA Limited

60 Pratik Khandelwal Employee of ITNL
61 Pritam Kumar Employee of IL&FS
62 R Venkatraman Employee of India Ratings & Research Private Limited
63 Rachit Bhanger Employee of ICRA Limited
64 Rajashree Murkute Employee of CARE Ratings Limited
65 Rajendr Malani Employee of IL&FS Engineering Limited
66 Rajesh Kotian Former Deputy Managing Director of IL&FS Financial Services Limited
67 Rajesh Mokashi Managing Director of CARE Ratings Limited
68 Rajiv Banga Managing Director and CEO of IL&FS Rail Limited
69 Rajnesh Khurana Employee of IL&FS Rail Limited
70 Rajshekar Kalluri Employee of India Ratings & Research Private Limited
71 Ramchand Karunakaran Former Chief Executive Officer- Infrastructure IL&FS Limited, Former Managing Director of ITNL
Former Chief Executive Officer- Financial Services of IL&FS, Former Chief Executive Officer and
72 Ramesh Bawa Managing Director of IL&FS Financial Services Limited
73 Ravi Parthasarthy Former Chairman of IL&FS group
Managing Director of IL&FS Cluster Development Initiative Limited and IL&FS Education &
74 RCM Reddy Technology Services Limited
75 Revati Kasture Employee of CARE Ratings Limited
76 Ritika Kapoor Employee of IL&FS
77 Rohit Gupta Employee of ICRA Limited
78 Rohit Inamdar Employee of ICRA Limited
79 S Nandakumar Employee of India Ratings & Research Limited
80 Sabina Bhavnani Employee of IL&FS
81 Sabyasachi Mukherjee Employee of IL&FS
82 Sachin Wankhede Employee of Aditya Birla Capital Limited

83 Saibal Kumar Mukherjee Employee of IL&FS Engineering
84 Sambhu Mukherjee Employee of IL&FS
85 Sameer Mehta Employee of ICRA Limited
86 Samriddhi Chowdhary Assistant Vice President, ICRA Limited
87 Sanjay Agarwal Employee of CARE Ratings Limited
88 Sanjiv Rai Employee of IL&FS
89 Santosh Swamy -

90 Saurabh Dhole Employee of ICRA Limited
91 Sekharan Menon Employee of IL&FS
92 Shaivali Parekh Employee of ITNL
93 Shantha Padmanabhan Employee of ICRA Limited
94 Shivananda Narvajagatkar Employee of IL&FS
95 Shravan Shetty Employee of L&T Financial Services Limited
96 Shubham Jain Employee of ICRA Limited
97 Soh Daryl Employee of Moodys
98 Subir Sen Employee of Aditya Birla Capital Limited
99 Subodh Kumar Employee of Unitech Group
100 Suguna Mudunddi Employee of IL&FS Engineering Limited
101 Sujoy Das Former Chief Credit & Risk Officer of IL&FS
102 Sunaina DA Cunha Employee of Aditya Birla Capital Limited

103 Sunil Pisharody Employee of IL&FS
104 Sunil Wadhwa Employee of IL&FS

105 Surjeet Wagh Employee of IL&FS
106 Sushil Khandelwal Employee of IL&FS
107 Tarun Banerjee Employee of IL&FS Rail Limited
108 Vasudev Rao Employee of IL&FS
109 Vibhav Kapoor Former Group Chief Investment Officer of IL&FS
110 Vibhor Mittal Employee of ICRA Limited
111 Vijay Kini Vice President of ITNL
112 Vishal Gabda Employee of IL&FS

113 Vishal Waghela Employee of IL&FS
114 Vishwanath Vanit Employee of IL&FS
115 Vivek Mathur Employee of ICRA Limited
Summary of Observations

 Consistently good ratings provided by Credit Rating Agencies from June 2012 to June 2018:
 We conducted a review of the ratings provided by the various Credit Rating Agencies to the major companies of the IL&FS group, namely ITNL, IFIN and IL&FS
Limited. Basis our analysis, it appears that that CRAs had consistently provided and maintained good ratings over the years until in July/August 2018 when they
downgraded the ratings for the first time for ITNL due to the default of repayment of Commercial papers.
 Identified instances which indicated liquidity issues/ stress in the IL&FS group since 2015:
 We identified multiple emails, which indicates that the IL&FS group was under stress or faced liquidity issues since 2015, mainly on account of the following
reasons:
 Significant increase in debt in the various group companies majorly ITNL;
 High capital requirement for ITNL and its various SPV’s;
 Decreasing profitability of IL&FS group;
 Supporting weaker companies in the IL&FS group; etc.
 Identified instances which suggest that Credit Rating Agencies had multiple concerns for the last 6/7 years on the operations of the IL&FS group:
 We identified multiple emails which indicate that Credit Rating Agencies had raised multiples issues with regards to the operation of the IL&FS group, mainly ITNL,
IFIN, and IL&FS Limited. The emails identified are over the period from 2008 to 2018.
 Based on the above three points, it was noted that although Credit Rating Agencies had concerns/issues with the operations of the IL&FS group (including potential
stress and liquidity indicators) during the period June 2012 to June 2018, the ratings assigned by them were consistently high and the same were
reversed/downgraded only post June/July 2018.
 Thus, we reviewed emails to try and identify the rationale for providing high ratings or not downgrading the ratings in spite of multiple concerns on the operations of the
IL&FS group.
 Potential strategies undertaken by the former key employees/KMPs of IL&FS group:
 We identified that the following were the potential strategies which were applied by the former key employees/KMPs of IL&FS group to get good ratings or avoid a
downgrade in ratings from the Credit Rating Agencies:
 We noted that the credit rating rationale which is supposed to be drafted by the rating agencies were materially modified by or significant suggestions from the
former key employees of IL&FS were incorporated, to provide and support good ratings given by the CRAs;
 Potential strategies undertaken by the former key employees/KMPs of IL&FS group: (Cont’d)
 We noted that in case if the then key employees of IL&FS became aware that ratings are not going to be favorable, they then either delay the process of rating
surveillance or delay the publication of the rating on the public domain.
 We noted in certain instances that intentionally incorrect or incomplete information was being provided to the Credit Rating Agencies to avoid rating downgrade;
 We noted instances where in case if the then key employees of IL&FS did not receive the desired rating from the CRA they used to potentially pressurize rating
agencies to either withdraw the credit ratings or credit rating request or approach other rating agencies who would provide the desired ratings;
 We noted instances where if the ratings are not favorable, the then key employees of IL&FS tend to keep the ratings in private domain;
 We noted instances where after meeting with the then key employees of IL&FS, CRA would not downgrade the ratings which it initial decided;
 Thus, it appears that various potential strategies noted above were applied to ensure favorable ratings or to avoid the rating downgrade.
 Potential favors/gifts provided to the representatives of the credit rating agencies:
 During our e-mail review, we identified various instances where benefits in the form of favors such as
 Ramesh Bawa facilitated villa purchased for Ambreesh Srivastava (India Ratings),
 Arun Saha arranged football tickets for D Ravishankar (Brickwork Ratings) relating to the matches in Real Madrid,
 IL&FS group donated to the Sameeksha Trust INR 25 lakhs where the managing trustee D. N. Ghosh is also the chairman of ICRA.
 Further, our email review indicates that the various key officials of rating agency were provided gifts such as smartwatches, shirts, coasters, etc.
 Potential conflict of interest between IL&FS and CARE (one of the rating agencies):
 Our review of the financials of CARE indicates that for the period 2007 to 2013, IL&FS Limited and IFIN owned equity shares of approx. 5-9% of CARE. Further,
during the same period, we have noted that CARE had also provided ratings to instruments of IFIN, ITNL and IL&FS Limited. Thus, it appears to be a potential
conflict of interest as CARE is rating its equity shareholder which may potentially affect the independence of the rating agency.
 Thus, based on the review of the emails, it appears that the rating agencies were potentially aware of the issues in the IL&FS group. However, various strategies
deployed by the then key officials of IL&FS group and certain favors/gifts provided to rating agency officials suggest the possible reasons for consistent good ratings
provided to IL&FS group during the period June 2012 to June 2018.
 Thus, in the subsequent pages, we have highlighted instances where we have identified that the rating agencies had initially decided to downgrade the ratings,
however, a combination of tactics employed by then key employees of IL&FS and favors/gifts extended to key officials of CRAs resulted in either consistent/good
ratings or avoidance of rating downgrade.
Summary of Observations – Example 1
Potential change in rating by CARE post meeting with IL&FS key former employees:
 We identified the following email trail which appear to suggest that meetings were held between then key employees of IL&FS and CARE officials post which the ratings
were not downgraded. The below table provides sequence of events:
# Date Recipients of mail Contents of mail
1 27 December 2016 From: Piyush Nimgaonkar (Manager at CARE) CARE official had shared rating letter to the representatives of IECCL.
To: Saibal Mukherjee (AGM at IL&FS
Engineering and Construction Company
Limited ‘IECCL’)
2 27 December 2016 From: Saibal Mukherjee Saibal Mukherjee informs the KMPs of ITNL that CARE had downgraded IECCL bank line ratings to ‘BB+ with
outlook stable’.
3 28 December 2016 From: Saibal Mukherjee It appears that a meeting had been set up with Rajesh Mokashi (Managing Director at CARE), Arun Saha, and
To: Arun Saha Mukund Sapre on 30 December 2016.
(Joint Managing Director at IL&FS Limited)
4 09 February 2017 Press Release On review of the press release by CARE for IECCL’s long term fund based bank facilities, it was noted that the
ratings of the said bank facilities were reaffirmed at ‘BBB-’ with outlook stable.
 Thus, based on the above chain of events in the email, it appears that CARE had earlier planned to assigned ‘BB+ with outlook stable’ ratings to IECCL which was
changed to ‘BBB- with outlook stable’ post meetings between the representatives of CARE and IL&FS group. (Extracts of the emails are in subsequent pages)
Extracts of relevant snapshots
1 2
3 4
Observation
 Based on our email review, we identified the following mails which appear to suggest meetings/discussion were conducted with the CARE officials post which ratings
were not downgraded by CARE. The below table provides sequence of events –
1 11 April 2016 From: Piyush Nimgaonkar CARE official communicates provisional ratings at ‘AA+’ for proposed NCD of INR 300 crores to be raised by
(Manager at CARE) Gujarat Road and Implementation Company Limited.
To: Vijay Kini
2 11 April 2016 From: Subyasachi Mukherjee Subyasachi Mukherjee appears to be unhappy with the provisional ratings. He further states that rating from
To: Piyush Nimgaonkar another agency at ‘AAA’ was already in place. He requested CARE to reconsider rating to ‘AAA’.
(Manager at CARE)
3 11 April 2016 From: Subyasachi Mukherjee CARE was already informed that ICRA was in place to obtain the AAA rating and that they were required to
To: Arun Saha, Sujoy Das, and Dilip Bhatia match the rating. Subyasachi Mukerjee further states that based on the representation made by them, the CARE
official was willing to go back to the committee for the same.
He further request Arun Saha to discuss the issue with D Dogra and Rajesh Mokashi (Managing Director at
CARE).
4 12 April 2016 From: Arun Saha Arun Saha states that he had spoken to Rajesh Mokashi (Managing Director at CARE).
To: Subyasachi Mukherjee, Sujoy Das, and
Dilip Bhatia
5 13 May 2016 Press Release On review of the press release by CARE for Gujarat Road and Implementation Company Limited non-convertible
debentures of INR 300 crores, it was noted that the provisional and the final ratings of the said facilities were
assigned at ‘AAA’.
Conclusion
 Based on the above chain of events, it appears that after conducting meetings/discussions between the representatives of CARE and KMPs of IL&FS Group, the ratings
were finally assigned at ‘AAA’ even though Fitch had earlier planned to assigned ratings at ‘AA+’.
1 2
3 5
Potential change in rating by ICRA post meeting with IL&FS key former employees:
 We identified the following email trails which appear to suggest that meetings were held between key former employees of IL&FS and ICRA officials in order to mitigate
the potential downgrade of ratings. The below table provides sequence of events:
1 10 September 2013 From: Dheeraj Kumar ICRA had assigned rating at ‘A- with outlook stable’ for an INR 100 crores non-fund based facility availed by
(General Manager at IL&FS Rail Limited) IL&FS Rail Limited.
2 10 September 2013 From: Arun Saha Arun Saha suggests to set up a meeting / call in coming days as the rating provided was a notch below than the
To: Dheeraj Kumar ratings of ITNL.
3 18 September 2013 From: Sujoy Das Sujoy Das suggested a meeting between Anjan Ghosh (Chief Rating Officer at ICRA) and Arun Saha to discuss
To: Arun Saha specific issues.
4 18 September 2013 From: Arun Saha Time schedules were suggested by Arun Saha for the meeting.
To: Sujoy Das
5 18 September 2013 From: Sujoy Das A meeting was scheduled between Anjan Ghosh (Chief Rating Officer at ICRA) and Arun Saha.
To: Arun Saha
6 December- 2013 Press Release On review of the press release by ICRA for IL&FS Rail Limited’s non-fund based bank facilities of INR 100 crores,
it was noted that the ratings of the said bank facilities were assigned at ‘A’ with outlook stable.
 Thus, based on the above chain of events in the email, it appears that ICRA had earlier planned to assigned ‘A- with outlook stable’ ratings to IL&FS Rail Limited which
was changed to ‘A with outlook stable’ post meetings between the representatives of ICRA and IL&FS group. (Extracts of the emails are in subsequent pages)
1 2
3 4
5 6
 Based on our review, we identified the following emails which appear to suggest that meetings were held between the ICRA officials and former key employees of IL&FS
group in order to mitigate potential downgrade of ratings by ICRA. The below table provides sequence of events:
1 29 December 2015 From: Sujoy Das This e-mail pertains to summary of a conference call between ICRA and ITNL. It appears that ICRA indicated
To: Mukund Sapre that it wants to downgrade ratings of ITNL
2 30 December 2015 From: Arun K Saha Arun Saha requested Ravi Parthasarathy to conduct a meeting with Naresh Thakkar (MD and group CEO,
To: Ravi Parthasarathy ICRA) to discuss the issue of rating downgrade of ITNL
3 12 January 2016 From: Kartik Srinivasan (Employee of ICRA) The email contains agenda for meeting with Naresh Thakkar which includes points like pressure on profitability
of IL&FS, slowdown in monetization of investments, weak performance of IECCL, increased debt levels and
high capital requirements for ITNL
4 20 May 2016 From: Ravi Parthasarathy The mail indicates that Ravi Parthasarthy, Ramesh Bawa and Naresh Thakker met on 19 May 2016. It was
To multiple persons within ILFS group agreed in the discussion that ICRA would hold the ratings of ITNL till end of June 2016
 Thus, based on the above chain of events, it appears that post meeting between Ravi Parthasarathy and Naresh Thakker the ratings of ITNL were kept on hold instead
of downgrade ratings immediately.
1 2
3 4
 Based on our email review, we identified the following mails which appear to suggest meetings/discussion were conducted with the ICRA officials to avoid potential
downgrade of ratings by ICRA. The below table provides sequence of events:
1 06 October 2015 From: Rachit Bhangar ICRA rating committee had revised the rating of Rapid Metrorail Gurgaon Limited from ‘BBB with outlook stable’
(Senior Credit Analyst at ICRA Limited, to ‘BBB- with outlook negative’ for its INR 761.60 crores term loans.
Gurgaon) To: Rajiv Banga
2 08 October 2015 From: Rajiv Banga Rajiv Banga mentions that rating assigned by ICRA was not acceptable and had suggested that the rating
To: Rachit Bhangar agency to not publish the ratings.
3 14 December 2015 From: Rachit Bhangar ICRA had taken into consideration the representation made by Rajiv Banga and had reconfirmed the rating
To: Rajiv Banga communicated earlier on 06 October 2016 (BBB- with outlook negative).
4 15 December 2015 From: Rajiv Banga Rajiv Banga mentions that their representation has not been duly considered and hence they did not agree with
To: Rachit Bhangar the assessment of the rating.
Further, they are in discussions with ICRA officials in Mumbai through IL&FS Corporate Office in Mumbai.
Hence, a request was made to keep the rating on hold and to not release in the press.
5 12 February 2016 From: Rachit Bhangar ICRA after considering the representation made by IL&FS had revised the rating to ‘BBB- with outlook stable’
To: Rajiv Banga (as per earlier communication from ICRA the ratings were assigned at ‘BBB- with outlook negative’).
6 16 February 2016 From: Rajiv Banga Rajiv Banga communicates IL&FS’s lack of agreement with the revised ratings assigned by ICRA and suggest
To: Rachit Bhangar to keep the ratings on hold till abeyance. He suggest Rachit Bhangar to discuss the same with Anjan Ghosh
(Executive VP and Chief Rating Officer at ICRA).
7 31 March 2016 From: Rachit Bhangar ICRA after considering the representation made by IL&FS had again revised the rating to ‘BBB with outlook
To: Rajiv Banga negative’ (as per earlier communication from ICRA the ratings were assigned at ‘BBB- with outlook stable’).
8 31 March 2016 From: Arun Saha Arun Saha suggests that rating (BBB with outlook negative from BBB- with outlook negative) provided by ICRA
To: Rajiv Banga is the best that they can get.
From: Rajiv Banga Rajiv Banga states that post Sujoy Das’s intervention with ICRA, the ratings were restored to ‘BBB with outlook
To: Sujoy Das negative’.
9 Press Release On review of the press release by ICRA for Rapid Metrorail Gurgaon Limited for facility of INR 761.60 crores, it
was noted that the provisional and the final ratings of the said facilities were assigned at ‘BBB with outlook
negative’.
 Thus, based on the above chain of events, it appears that after conducting private meetings/discussions between the representatives of ICRA and KMPs of IL&FS
Group, the ratings were finally assigned at ‘BBB with outlook negative’ even though ICRA had earlier planned to assigned ratings at ‘BBB- with outlook negative’.
1 2
3 4
5 6
7 8
Potential change in rating by Fitch post meeting with IL&FS key former employees:
 We identified the following email trails which appears to suggest that meetings were held between key former employees of IL&FS and Fitch officials in order to avoid
potential downgrade of ratings. The below table provides sequence of events:
1 15 November 2011 From: Ananda Bhoumik (Managing Director Fitch committee had assigned rating at ‘AAA with outlook negative’ for IL&FS. The outlook was revised from
and Chief Analytical Officer at India Ratings stable to negative.
and Research – Fitch Group) A draft Rating Action Commentary is shared by Fitch group for review and comments of IL&FS employees.
To: Arun Saha, Manu Kochhar, Sujoy Das
2 15 November 2011 From: Arun Saha Arun Saha mentions that he had a meeting with Mark Young (Managing Director) where Fitch Group had raised
To: Ravi Parthasarathy and Hari Sanakaran some concerns with regards to IL&FS asset book and divestments.
3 15 November 2011 From: Ravi Parthasarathy Ravi Parthasarathy suggests Arun Saha to have discussion with Ambreesh Srivastava in order to delay the
To: Arun Saha and Hari Sanakaran announcement of ratings. Further, Ravi Parthasarathy suggested a meeting between Ambreesh Srivastava and
him before the announcement of ratings.
4 15 November 2011 From: Arun Saha Arun Saha informs Ravi Parthasarathy that based on his discussion with Ambreesh Srivastava he understands
To: Ravi Parthasarathy that Fitch had raised some concerns with regards to divestment activities and independent rating on the group
assets.
Further, he stated that rating reconsideration can be requested with newer facts but the said exercise was to be
completed within tight a timeframe.
5 16 November 2011 From: Ananda Bhoumik Conference call is set up between representatives of Fitch and IL&FS.
To: Arun Saha
6 16 November 2011 From: Manu Kochhar IL&FS provided its comments on the draft Risk Action Commentary for IL&FS as shared by Fitch.
To: Arun Saha
7 A request for Rating Meeting between Fitch officials and Ravi Parthasarathy is sought by IL&FS.
8 21 November 2011 Press Release On review of the press release by Fitch for IL&FS long term ratings, it was noted that the ratings of the said bank
facilities was assigned at ‘AAA with outlook stable’.
 Thus, based on the email trail, it appears that post private meetings between the representatives of Fitch and KMPs of IL&FS Group, the ratings were finally assigned at
‘AAA with outlook stable’ even though Fitch had earlier planned to assigned ratings at ‘AAA with outlook negative’.
1 2
3 4
5 6
7 8
Detailed Observations

Analysis of ratings issued by the Credit Rating Agencies

Analysis of ratings issued by the Credit Rating Agencies
 During our review, we conducted an analysis of the ratings assigned to three entities of IL&FS group i.e. ITNL, IFIN, and IL&FS Limited for the period June 2012 to
October 2018. It was noted that the ratings for the instruments (loans) of the three companies were assigned by five Credit Rating Agencies namely CRISIL, CARE,
ICRA, India Ratings and Research (Fitch) and Brickwork Ratings.
 Our review appears to suggest that until June 2018, the ratings assigned by the Credit Rating Agencies were consistently under the rating scale ‘Highest / High Safety’
(in case of long term instrument) and ‘Lowest / Low Credit Risk’ (in case of short term instrument) for the three companies namely ITNL, IFIN, and IL&FS Limited.
 Further, the rating agencies had kept the rating under watch list for ITNL from July 2018 and for IFIN and IL&FS Limited from September 2018. These ratings were later
on downgraded and were assigned ‘default’ status in the month of September 2018.
 The below chart provides a graphical representation of the patterns of ratings issued by these Credit Rating Agencies:
Rating History of ITNL Rating History of IFIN Rating History of IL&FS Limited
A A A
B B B
Ratings
Ratings
Ratings
C C C
D D D
2012 2013 2014 2015 2016 2017 2018 2018 2012 2013 2014 2015 2016 2017 2018 2018 2012 2013 2014 2015 2016 2017 2018 2018
H1 H1 H1
Year Year Year
CARE CRISIL India Rating ICRA BWR CARE India Rating ICRA BWR CARE ICRA India Rating
 Hence, based on the analysis, it appears that from June 2012 to June 2018, Credit Rating Agencies did not identify any major issues in the three of the significant
companies of IL&FS group as they have not downgraded the rating for the said period.
Potential instances indicating liquidity issues/ stress in the IL&FS group

Potential liquidity issues in ITNL during the period 2015:

 We identified an email dated 24 September 2015 which was sent by Ramesh Bawa to Hari Sankaran where they share a note discussing liquidity issues in ITNL on
account of cost over-run in various projects. Further, the note also highlights that increase in the use of the commercial papers was raising the suspicion of the market
(i.e. stakeholders) on the liquidity of ITNL.
 Thus, the email indicates that there were potential liquidity issues in ITNL during the period September 2015.
1
2
3
Potential liquidity issues in ITNL during the period September 2015 to March 2016:
 We identified an email dated 19 March 2016 sent by Ravi Parthasarathy to former KMPs of the IL&FS group where he appears to mention the following:
 ITNL was not able to raise funds from the market post March 2016;
 The only option is to merge the operating entities in ITNL so that it appears to the stakeholders as an operating company and can raise additional funds. Further, he
agreed that ITNL as well as IECCL are perceived to be stressed companies.
 Thus, the email indicates that ITNL and IECCL, had liquidity issues during the period September 2015 to March 2016.
Potential liquidity issues in IECCL during FY 2014 - 2015:

 During our review, we identified an email dated 23 June 2014 which was sent by MD Khattar to KMPs of IL&FS group indicating liquidity issues in the IECCL for the FY
2014 - 2015. Thus, the email indicates that IECCL had liquidity issues during FY 2014-2015.
1 2
Potential liquidity issues in IECCL during June 2018:

 We identified an email dated 29 June 2018 which was sent by Sambhu Mukherjee where he appears to inform Arun Saha about the ICICI bank’s decision to classify
IECCL under ‘SMA-0 category’ (stressed asset category) to the Reserve Bank of India (‘RBI’) on account of non payment of dues. Thus, the email indicates that IECCL
was under stress during the period June-2018.
Potential liquidity issues in IL&FS group during February 2018:

 We identified an email dated 22 February 2018 which was sent by KV Sawant to Arun Saha where he appears to state that for the requirement of funds in various
group companies they are withdrawing lien marked fixed deposits which are not due for maturity. Further, he states that there is a stress which can be reduced by
borrowing from market. This email is further forwarded by Arun Saha to Hari Sankaran where he appears to indicate that the current situation of the group is further
deteriorating. Thus, these emails indicates that the IL&FS group was under liquidity issues/stress during the period February 2018.
1 2
Potential concerns raised by Credit Rating Agencies

Potential concerns of multiple rating agencies on IL&FS group during the year 2011:
 Our review identified an email dated 21 November 2011 which was sent by Sushil Khandelwal to Sujoy Das highlighting concerns of the three rating agencies namely
CARE, ICRA and Fitch. The concerns raised were pertaining to such as profitability, divestment, weak exposure in group companies, etc.
 Further, our review of the ratings from these three CRAs indicates that they have not downgraded their ratings during the period November 2011 even though they
were aware that the group was under stress and had multiple issues.
1 2
Potential rating concerns on IL&FS group by Fitch during the period December 2011:
 Our review identified an email dated 28 December 2011 which was sent by Arun Saha to Sujoy Das and Manu Kochhar highlighting the concerns raised by one of the
rating agencies named Fitch. The concerns revolved around investment plans, profitability, etc. Thus, the email indicates that during the period December 2011 Fitch
had various concerns however the rating by them have remained lowest/low risk during the said period.
Potential concerns raised by ICRA on ITNL during the period December 2015:
 We identified an email dated 30 December 2015 which was sent by Ravi Parthasarathy highlighting to Naresh Takkar that he understands the concerns raised by
ICRA on the operations of ITNL and offers explanations for the same. Further, he also proposes to meet him in person.
 Our email review indicates that ITNL had potential liquidity issues in the period September 2015 to March 2016 (page 49). Further, the email below indicates that ICRA
had concerns on the operations of ITNL. However, the same was not reflected in any ratings given by ICRA during the period FY 2015 – 2016 i.e. there was no rating
given by ICRA during the said period.
Potential concerns raised by ICRA on ITNL during the period December 2015:
 (Cont’d)
Potential rating concerns on IL&FS Limited, ITNL and IFIN for February 2017:
 We identified an email dated 23 February 2017 which was sent by Annapurna Ramesh to Arun Saha highlighting multiple rating concerns in the company IL&FS
Limited, IFIN and ITNL indicating that the entities were in stress. However, our review indicates no downgrade in the rating given by the rating agencies during
February 2017.
Potential strategies applied by IL&FS former key employees to avoid a downgrade in credit ratings

Detailed Observations - Potential strategies applied by IL&FS former key employees to avoid a
downgrade in credit ratings
Material changes in credit rating rationale being suggested by the then key representatives of IL&FS

Material changes in credit rating rationale being suggested by the former representatives of IL&FS
Potential changes in the rating rationale of India Ratings on ITNL:

 We identified a word document titled “Rating Commentary India Rating” in the electronic device of Dilip Bhatia. The document was relating to the rationale of the rating
to be issued on ITNL for the period FY 2015-16 by India Ratings. The documents had a comment of Ajay Menon on a particular point “adverse settlement or significant
delays in claims against NHAI leading to increase debt”. The comment appears to raise a question if the negative point should be part of the rating rationale.
 Thus, on the basis of the comment, it appears that employees of ITNL wanted to remove negative comments from the rating rationale provided by the rating agency.
Potential changes in the rating rationale of India Ratings on ITNL:

 We identified an email dated 27 March 2017, in which the rating rationale of ICRA for ITNL was shared by Gaurav Mashalkar (Senior Analyst, ICRA) with Bharati
Parwani. Further email trail highlights that Annapurna Ramesh informing Arun Saha that the rationales had been modified few times which majorly pertains to removal
of leverage numbers of IL&FS.
 Thus, the email suggests that employees of IL&FS had suggested the removal of important/relevant information from the rating rationale.
1 2
Potential changes in the rating rationale of India Ratings on IL&FS Limited:

 We identified an email dated 03 December 2014 which was sent by Sujoy Das to Sushil Khandelwal in which he appears to suggest that the conclusion of the rating
rationale provided by the India Ratings should be softened/less harsh. Further, he also suggests the wording for the conclusion should be “may result in a negative
outlook or downgrade”.
 Our public domain searches indicated that the ratings had the exact same wordings as suggested by Sujoy Das. Thus, it indicates that IL&FS may have been able to
potentially influence the wordings/rationale of India Ratings.
1 2
Potential changes in the rating rationale of India Ratings on IFIN and IL&FS Limited:
 We identified an email dated 18 March 2016 which was sent by Arun K Saha to Ravi Parthasarathy where Arun K Saha appears to edit/change the wording of the draft
rationale sent by India Ratings. Further, it was also noted that the final rating suggested was also modified from rating downgrade to negative outlook only.
 Based on our public domain search, it is noted that India Ratings have published the rating rationales with the changes/edits suggested by Arun Saha.
 Thus, it appears that ratings, as well as rating rationales, were being potentially modified by the key representatives of IL&FS.
Potential changes in the rating rationale of ICRA on IL&FS Limited:

 Our review identified an email dated 18 April 2016 which was sent by Saurabh Dhole (an employee of ICRA) to Shantha Padmanabhan requesting her to verify the
edited rating rationale. Further, he also appears to request Shantha Padmanabhan to suggest any additional changes to be executed.
 Further, the trail email which was sent by Manish Agal to Sujoy Das provides a comparison of the suggestion provided by IL&FS employees and the inputs incorporated
by the ICRA officials. Additionally, when the rating rationale was published by the ICRA it had the changes suggested by then key employees of IL&FS (extracts shared
in next page).
 Thus, it appears that IL&FS employees had an input into the document which outlined the rating rationale.
1 2
Potential changes in the rating rationale of ICRA on IL&FS Limited:

 (Cont’d)
1 2
Potential attempts made to delay the process of credit rating

Potential delay of rating by CARE for IFIN:

 We identified an email dated 20 September 2010 which was sent by Arun Saha to Ramesh Bawa stating that IFIN had received ‘AA’ rating from CARE Rating
committee and further he states that he had made suggestion to CARE to not to send any communication regarding the rating.
 Our review indicates that the rating was provided by CARE on 31 December 2010.
 Thus, this appears to suggest that the former key officials of IL&FS had significant influence on the rating agency as to when to release the ratings.
Delay in rating process of ITNL by India Ratings:

 We identified an email dated 8 January 2018 which was sent by Arun K Saha to Dilip Bhatia highlighting that there will be an immediate downgrade of rating by India
ratings for ITNL but not by several points. The said email was responded by Karunakaran Ramchand and Ramesh Bawa where they appear to suggest that there
should be a delay in the downgrade of rating to complete certain important transactions. Hari Sankaran has further informed the group that he and Arun Saha met with
India Rating key officials and they appear to have delayed the rating downgrade actions by 3 months.
 Thus, the review of the email indicates that even though India Ratings was planning to downgrade the rating since January 2018, they appear not to do so and delayed
the rating process as suggested by the key former officials of IL&FS.
1 3
Delay in rating process of ITNL by India Ratings:

 (Cont’d)
Potential delay in the rating surveillance of RMGL and RMGSL during the period January 2018:
 We identified an email dated 25 January 2018 sent by Sujoy Das to Rajiv Banga where he appears to state that based on the informal feedback received from the
ICRA, it appears that rating downgrade of Rapid Metro Gurgaon Limited was unavoidable. Further, he mentioned that he is trying to get single notch downgrade for
RMGL. Additionally, he suggest rating decision of RMGL needs to be taken on priority as it was nearing regulatory timelines.
 Also, he appears to suggest that he had requested for the delay in rating surveillance of RMGSL.
 Thus, based on the email it appears that to delay the process of rating surveillance of one of the strategies adopted to avoid the rating downgrade from ICRA.
Potentially incorrect / incomplete data provided to the Credit Rating Agencies

Potential incomplete information to be shared with CARE:

 During our review of an email trail in March 2008, it was identified that CARE required details with regards to the Elsamex Spain deal acquisition in the year 2008 to
which K Ramchand responded to Ajay Menon to provide limited information only and give the available information in piecemeal till the ratings are obtained.
 Thus from the email, it appears that in order to get good ratings there is a potential wrong intention to withhold the required information from the rating agencies.
(Cont’d)
1 2
Potential incomplete information to be shared with CARE:

 (Cont’d)
5 6
Potentially submitting inflated forecast amounts of Profit after tax to CRISIL:

 We identified an email dated 17 December 2010 where it appears that Ajay Menon was informing Karunakaran Ramchand about the projected Profit after Tax (‘PAT’)
for FY 2010 – 2011 would be approximately INR 240 crs. However, the same was indicated as INR 325 crs for the purpose of rating from CRISIL.
 Thus, the email appears to indicate that inflated/better projections were submitted to CRISIL in order to get good ratings.
Rating provided by ICRA without adequate information:

 We identified an email dated 16 June 2017 where Manish Agal appears to inform Sushil Khandelwal about the details shared with ICRA for the year 2016. Further, he
informs him that projections were not shared with ICRA for getting the ratings in the year 2016.
 This appears to suggest that without obtaining critical data like the projection of profits, rating may have been provided by ICRA.
Potential pressures/ strategy to withdraw the credit ratings or obtaining rating from other CRA

Potential pressures/ strategy to withdraw the credit ratings
Potential pressure to withdraw the rating in case if the favorable rating is not obtained:
 Our review identified an email dated 16 July 2009 where it appears that K V Sawant is informing Arun Saha about their plans to obtain a second rating from Brickwork
for Non-Convertible debentures (‘NCDs’) of INR 400 crs. Further, he stated that his team was in talks with K N Suvarna (President – Business Development team,
Brickwork ratings) for getting ‘AAA+’ ratings. Further, the trail of the emails indicates that Brickworks was not ready to assign ‘AAA+’ rating to which K V Sawant
informed Brickworks about the withdrawal of the rating request.
 Thus, it appears that as favorable rating was not provided by Brickworks, the then key officials of IL&FS pressured to withdrew the rating request.
1 2
Suggestion from ICRA to withdraw the rating request voluntarily:

 We identified in an email dated 20 September 2018 from Sujoy Das to KMPs of IL&FS group where he highlights that ICRA has suggested withdrawing rating request
as favorable ratings could not be provided. Further, withdrawal by ITNL would be a better strategy then ICRA withdrawing the ratings.
 Thus, it appears that rating agencies assisted ITNL in executing the strategy to withdraw the rating request.
Suggestion from ICRA to withdraw the rating request voluntarily:

 (Cont’d)
Potential withdrawal of ratings for Sabarmati Capital Two Limited:

 We identified an email dated 24 September 2018 which was sent by Shaivali Parekh to Sujoy Das and Arun Saha indicating that Brickworks wanted to downgrade the
rating of loan facilities of Sabarmati Capital Two Limited to BWR C (having a high risk of default). This email was responded by Sujoy Das where he suggested that
rating request be withdrawn for Sabarmati Capital One Limited and Sabarmati Capital Two Limited.
 Thus, this email appears to suggest that in case of a rating downgrade, the former key officials of IL&FS used to consider withdrawal of ratings as one of the strategies.
1 2
Potential pressures/strategy to obtain rating from other credit rating agencies
Potential strategy to not approach those rating agencies who are not providing the desired ratings:
 We identified an email dated 12 August 2008 which was sent by Arun Saha to Ravi Parthasarathy, where it was noted that ICRA committee had decided to not issue
“AAA” rating for the debt instruments of IFIN. This step was ICRA was not agreeable to Ramesh Bawa.
 Further, in the trail email Ravi Parthasarathy suggests that they can approach CARE, FITCH as well as CRISIL for the ratings instead of ICRA.
 Thus, the email trail suggest that key former employees of IL&FS used to approach other rating agencies if they did not get the desired ratings.
1 1 2
3 4
Potential pressures given to CARE to provide same rating as other credit rating agencies:
 We identified an email dated 11 March 2016 which was sent by Sabyasachi Mukherjee to Arun Saha informing him about the discussions which he held with the CARE
employees. We appears to state that two of the rating agencies are providing AA(SO) rating and incase if CARE is interest to work, then they desire to give the ratings
same as other agencies have provided.
 Thus, from the email is appears that CARE was potentially pressurized to give the same rating as other credit rating agencies.
Potential strategy to remove CARE as they have downgraded the ratings:

 We identified an email dated 15 October 2018 which was sent by Madan Mohan informing multiple people that CARE had downgraded the ratings of Jharkhand Road
Projects Implementation Company Limited (‘JRPICL’) NCD by two notches, however, both India Rating and CRISIL had maintained their ratings at AA(SO). Further,
Madan Mohan requests for an approval to remove CARE as one of the rating agency for JRPICL.
 Thus, it appears that as the key former employees of IL&FS did not receive the desired rating they removed them as their rating agency.
Potential strategy to remove CARE as they have downgraded the ratings:

 (Cont’d)
1 2
Obtain ratings from the rating agencies and keeping it private

Potential strategy to obtain ratings from Brickworks and keep it private in case if the favorable rating is not obtained:
 We identified an email dated 8 April 2013 which was sent by Ajay Menon to Sujoy Das informing him that an investor of commercial papers had requested ITNL to get
credit ratings from Brickworks. Further, in the trail email Sujoy Das informs Arun Saha about the proposal of Ajay Menon and states that ratings will be kept private if
highest short term rating is not given by Brickworks.
 Thus, it appears that if the favorable ratings are not obtained, the key former employees of IL&FS, tend to maintain the ratings private.
1 2
Potential strategy provided by rating agency, India Rating to keep the ratings private:
 We identified an email dated 03 January 2014 which was sent by Arun Saha mentioning that Kishore Gandhi (Chief Credit Officer, India Ratings) had suggested that
IL&FS should go for private rating which can be shared with the Bankers for certain negotiations. This was further agreed by Sunil Wadhwa where he suggest that
based on the outcome it can be decided if the ratings are required to be shared with the Bankers or not.
 Thus, it appears that potential strategy to keep the ratings private was suggested by India Ratings which was agreed by the key former employees of IL&FS.
1 2
Potential strategy to keep the ratings private:

 We identified an email dated 30 January 2018 which was sent by Mic Kang (representative of Moodys) to Dilip Bhatia providing him with the rating letter for ITNL. This
was further shared by Dilip Bhatia with the KMPs for IL&FS, where he suggested that rating from Moodys should be kept in private domain and requested Anita
Ferreira to check the cost for the same. Based on the trail email, it was noted that by paying additional 68000 USD (i.e. INR 47 lakhs) to Moodys ratings can be kept in
private domain. This was potentially agreed by Dilip Bhatia.
 Thus, given the liquidity stress in ITNL, it is unusual to note that significant amount i.e. 68000 USD was offered to Moodys to keep the ratings of ITNL in private domain.
1 2
Potential strategy to keep the ratings private:

 (Cont’d)
3 4
Potential favors/gifts to key officials of Credit Rating Agencies

Potential favors to Ambreesh Srivastava given by Ramesh Bawa:

 During our review, we identified multiple emails in the period of September 2012 to August 2016, where it appeared that Ramesh Bawa had facilitated purchase of a
Villa for Jyotsna Srivastava, wife of Ambreesh Srivastava (Head of Financial Institutions – South and Southeast Asia, Fitch Ratings) and also helped them obtain
discount of ~INR 43 Lakh on purchase of the said Villa. Further, it was also noted that Ramesh Bawa requested Ajay Chandra (MD, Unitech Limited) to personally get
involved and resolve the issue that Jyotsna Srivastava was facing with regards to interest charged on delayed payments for the Villa purchased.
 Based on the review of the emails, it appears that the potentials favors were obtained by Ambreesh Srivastava from Ramesh Bawa. Thus, it brings into question his
independence in the rating obtain from Fitch as well as India Ratings.

 (Cont’d)
2 3

 (Cont’d)
4 5

 (Cont’d)
6 7
Potential favors to D. Ravishankar by Arun Saha:

 During our review, we identified an email dated 21 April 2015 which was sent by D. Ravishankar (Founder & Director, Brickwork Ratings) to Arun Saha thanking him for
arranging tickets for a football match at Madrid in the IL&FS corporate box. This email suggests potential favors which are arranged for the key officials of credit rating
agency by one of the former IL&FS management personnel.
Potential favors to ICRA by IL&FS Group:

 During our review, we identified an email dated 20 February 2008 which was sent by Meenakshi Kanagat (Manager in IL&FS Limited) to Ravi Parthasarthy indicating
donation of INR 25 lakhs to be given to Sameeksha Trust. Our public domain searches indicated that D. N, Ghosh is a Managing Trustee of Sameeksha Trust and also
former Chairman of ICRA Limited.
 Thus, it appears that the IL&FS group had close links with ICRA officials and further, monetary benefits were given to the other entities of the key officials of the rating
agency.
1 2
Potential gift to Rajesh Mokashi by Arun Saha:

 During our review, we identified an email dated 17 September 2013 which was sent by Sujoy Das (Chief Risk Officer of IL&FS group) to Arun Saha wherein discussion
was carried out between the two in relation to a Fitbit watch. Further, it was also discussed that the Fitbit watch was favorite of Rajesh Mokashi (Managing Director of
CARE) and whether he owns the particular Fitbit watch or not.
 It appears that Arun Saha and Sujoy Das were planning to provide Fitbit Watch as a gift to Rajesh Mokashi (Managing Director of CARE). Further, it also indicates that
IL&FS key personnel were aware of the likes of the key officials of CRA.
Potential gift to Ambreesh Srivastava by IL&FS:

 During our review, we identified an email dated 29 August 2016 which was sent by Lalita Jagtiani (Employee, IL&FS) to Melita Pereira (Employee, IL&FS), where it
appears that IL&FS had provided gifts in the form of shirts to various key managerial personnel of IL&FS as well as Ambreesh Srivastava (Managing Director, Fitch).
Thus, indicating potential close relationships between IL&FS and the CRA management team.
Potential gifts to key employees of credit rating agencies:

 We identified an email during our review which was dated 21 October 2014 and sent by Sekharan Menon (employee of IL&FS) to Sujoy Das (Chief Risk Officer, IL&FS
Group) in which it appears that Arun Saha had instructed to distribute gifts to key personnel of various rating agencies during Diwali.
 Thus, the email suggests a potential close relationship between the senior management of IL&FS and CRA.
Potential conflict of interest between IL&FS and CARE

Potential conflict of interest between IL&FS and CARE
Potential conflict of interest of IL&FS Group with Care Ratings Limited:

 CARE Ratings Limited is a listed rating agency headquartered in Mumbai. It is India’s second-largest rating agency with the rating volume of debt of around INR
128.37 lakh crores as on 31 March 2019. The company also has international operations in Africa, Nepal and other locations.
 The major shareholders as of 31 March 2019 for CARE Ratings Limited includes LIC (9.85%), Franklin Templeton Investment Funds (5.94%), Crisil Limited (8.9%) etc.
 During our review of rated instruments of IL&FS, we identified that the IL&FS group entities have availed rating services from CARE Ratings Limited during the period
2009 to 2018. These services were availed by three major IL&FS group companies as detailed below:
Instruments rated by CARE ITNL IFIN IL&FS Limited

Period 2009-18 In 2018 2012-18
Instruments Rated NCD, Commercial paper, subordinate NCD, Commercial papers, LT and ST NCD, Commercial papers, ST bank
debt, LT loans etc. bank facilities facilities
 We reviewed the shareholding details of CARE Ratings Limited and noted that IL&FS Group held shares of the CARE through one of its subsidiaries named IL&FS
Financials Services Limited over a period of three years as shown below:
IFIN Shareholding in CARE FY 07 FY 08- FY 09 FY 10- FY 12 FY 13
% of equity shareholding 2% 5% 9% 6%
• Note: IL&FS Limited held 3% shares in CARE in FY 2007 which was later transferred to IFIN.
 During our email review, we have identified instances indicating stress/liquidity issues in the IL&FS group during the period 2012 to 2014. Also, we noted that CARE
had assigned ratings to IL&FS group entities in the category of lowest / low risk consistently during the said period.
 Thus, it suggests the following:
 There was a potential conflict of interest for obtaining ratings from CARE during the period 2012 to 2014 as IL&FS group had an equity investment in the company.
 Further, the rating provided by CARE appears to be potentially influenced as the “lowest / low risk” rating was provided even after liquidity issues in the IL&FS
group.
Glossary

Glossary
Acronym Description
‘Grant Thornton’ or ‘GT’ or ‘Firm’ or ‘us’ or ‘our’ or ‘we’ Grant Thornton India LLP
AC or or ‘Client’ Audit Committee of IL&FS Group
ADIA Abu Dhabi Investment Authority
BOD Board of Directors
Brickwork Brickwork Ratings India Private Limited
CARE CARE ratings Limited
CBI Central Bank of India
CRA Credit Rating Agencies
CP Commercial Papers
CRISIL Credit Rating Information Services of India Limited
crs Crores
EL Engagement Letter
EOD Event of Default
Fitch Fitch Ratings Inc.
GRICL Gujarat Road and Infrastructure Company Limited
HDFC Housing Development Finance Corporation Limited
ICRA ICRA Limited
IECCL IL&FS Engineering and Construction Company Limited
IEDCL IL&FS Energy Development Company Limited
IFIN IL&FS Financial Services Limited
IL&FS Infrastructure Leasing & Financial Services Limited or IL&FS group
IECCL IL&FS Engineering and Construction Company Limited
Glossary
Acronym Description
India Ratings India Ratings and Research Private Limited (A Fitch Group Company)
INR Indian Rupees
ITNL IL&FS Transportation Networks Limited
JRPICL Jharkhand Road Projects Implementation Company Limited
LIC Life Insurance Corporation of India
NCLT National Company Law Tribunal
ORIX ORIX Corporation of Japan
PAT Profit after Tax
RBI Reserve Bank of India
RMGL Rapid Metro Gurgaon Limited
RMGSL Rapid Metro Gurgaon South Limited
SBI State Bank of India
SEBI Securities Exchange Board of India
SIDBI Small Industries Development Bank of India
Targets Primary Suspects
UTI Unit Trust of India

Grant Thornton On Credit Rating Agencies

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Project Icarus: Draft update pertaining to observations relating to Credit Rating Agencies

©2019 Grant Thornton India LLP. All rights reserved.

# Particulars Page No.

1 Limitations and Disclaimers 3

2 Overview of IL&FS: Background, Context, Objectives and Scope of work 6

3 Overview of Credit Rating Agencies 9

4 Approach and Methodology 17

5 Details about individuals and distribution list mentioned in email conversations 20

3 ©2019 Grant Thornton India LLP. All rights reserved.

Limitations and disclaimers to the draft update:

Limitations and disclaimers to the public domain searches conducted by us:

General limitations and disclaimers to the draft update:

Background, Context, Objectives and Scope of work

6 ©2019 Grant Thornton India LLP. All rights reserved.

Background about IL&FS Group:

Key areas of Liabilities Amount Key areas of Assets Amount

Context of the special audit:

Objectives of the special audit:

Objective of this report:

Background and context of Credit Rating Agencies

9 ©2019 Grant Thornton India LLP. All rights reserved.

Background on Rating Agencies:

Details on rating rationale:

Rating symbols used by Rating Agencies:

Rating symbols used by rating agencies: (Cont’d)

Rating Agencies associated with the IL&FS Group:

Key Managerial Personnel of Rating Agencies:

Facilities availed by IL&FS Group on which ratings were assigned:

17 ©2019 Grant Thornton India LLP. All rights reserved.

Digital forensic review exercise (Emails and user file review):

20 ©2019 Grant Thornton India LLP. All rights reserved.

# Name of the Individuals Designation / Position

# Name of the Individuals Designation / Position

# Name of the Individuals Designation / Position

82 Sachin Wankhede Employee of Aditya Birla Capital Limited

# Name of the Individuals Designation / Position

102 Sunaina DA Cunha Employee of Aditya Birla Capital Limited

104 Sunil Wadhwa Employee of IL&FS

112 Vishal Gabda Employee of IL&FS

25 ©2019 Grant Thornton India LLP. All rights reserved.

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

Extracts of relevant snapshots

44 ©2019 Grant Thornton India LLP. All rights reserved.

Analysis of ratings issued by the Credit Rating Agencies

45 ©2019 Grant Thornton India LLP. All rights reserved.

Potential instances indicating liquidity issues/ stress in the IL&FS group

47 ©2019 Grant Thornton India LLP. All rights reserved.

Potential liquidity issues in ITNL during the period 2015:

Potential liquidity issues in IECCL during FY 2014 - 2015:

Potential liquidity issues in IECCL during June 2018:

Potential liquidity issues in IL&FS group during February 2018:

Potential concerns raised by Credit Rating Agencies

53 ©2019 Grant Thornton India LLP. All rights reserved.

59 ©2019 Grant Thornton India LLP. All rights reserved.

downgrade in credit ratings