Infomerics Nepal places ratings of 18 firms on Negative Watch amid financial misconduct probe

Infomerics Credit Rating Nepal has placed the credit ratings of 18 companies under "Watch with Negative Implications" following ongoing investigations into financial misconduct involving several leading business figures linked to the rated entities.

The rating issued on June 18 comes after a week prosecutors launched one of the largest coordinated legal actions in the country’s financial history, filing cases across the securities, insurance, banking and anti-money laundering sectors against dozens of business leaders and corporate executives.

Prosecutors initiated cases on June 11. The District Government Attorney's Office filed two charge sheets at the Kathmandu District Court concerning violations of securities and insurance laws, while parallel money laundering and banking offence cases were lodged in the Special Court and Patan High Court, respectively. 

Collectively, the proceedings sought recovery of approximately NPR 27.8 billion in alleged losses and illicit gains across the various cases, including:

• NRs 3.74 billion in insurance-related claims,
• NRs 1.15 billion in securities-related claims,
• NRs 22.5 billion in money laundering claims,
• NRs 421 million in banking offence claims.

This represents one of the most significant financial crime prosecutions in the country’s history. 

Across four separate cases, prosecutors have named 167 defendants: 81 in the securities case, 42 in the insurance case, 39 in the money laundering case and five in the banking offence case. Authorities allege that the accused were involved in financial transactions significantly exceeding their declared and legitimate sources of income.

Among the highest-profile defendants is Infinity Holdings Chairman Deepak Bhatta, who faces four separate cases involving alleged irregular transactions. 

Shanker Group Chairman Shankarlal Agrawal and the group's vice presidents Sulav Agrawal and Sahil Agrawal are other accused.

Other prominent business leaders named in the cases include Golchha Group Chairman and Managing Director Shekhar Golchha, Jawalakhel Group of Industries Managing Director Raj Bahadur Shah, and Lucky Group Managing Director Amit Mor, among dozens of others.

During the course of the investigation, Bhatta, Shankerlal and Sulav were taken into custody on April 2,3 and 4, respectively. Shankerlal was released on personal recognisance after spending two days in detention. Golchha was apprehended on April 23 and subsequently released under a Supreme Court directive. At present, only Bhatta and Sulav are in custody.

With this, Infomerics Nepal, in a special rating action announced on Thursday, said investigations and related arrests of promoters and directors associated with several rated companies created uncertainty over governance, management continuity, business operations, and the firm’s financial health.

“The rating action reflects concerns regarding possible liquidity pressures, management continuity and operational risks arising from the alleged involvement of key personnel in the ongoing investigations,” the agency stated.

As a result, the agency has reaffirmed the existing ratings of 18 companies but simultaneously placed them on “Credit Watch with Negative Implications”, a formal warning that their credit profiles could deteriorate depending on how the legal proceedings unfold.

“The extent of the impact is not yet measurable,” the agency noted, adding that it will continue to monitor developments in the cases, potential changes in boards of directors and senior management, and their implications for the companies' financial and operational performance.

Billions in rated exposure

The affected firms represent a significant share of Nepal's industrial and financial sectors. The largest exposure on the list is Jagdamba Steels Limited, with rated facilities worth NRs 33.16 billion. 

Major cement manufacturers Shaurya Cement Industries Limited and Riddhi Cement Industries Limited follow with rated exposures of NRs 14.88 billion and NRs 11.94 billion, respectively.

Several companies associated with the Shanker Group have also been placed under the negative watch umbrella, including Jagdamba Motors Private Limited, Jagdamba Hospitality Group Limited, Jagdamba Auto Group Private Limited, Jagdamba Hire Purchase Limited, Jagdamba Flour and Agro Private Limited, and Jagdamba Mobiles Private Limited.

In the financial services sector, Himalayan Life Insurance Limited, Himalayan Investment Banker Limited, and Hulas Finserv Hire Purchase Limited have also been placed under negative watch.

While the rating action does not imply wrongdoing by the companies themselves, it signals elevated uncertainty for lenders and investors.

Credit-watch designations are commonly used by rating agencies when developments emerge that could materially affect an entity's creditworthiness but where the final impact remains unclear. The designation serves as a warning that ratings may be downgraded if adverse developments continue.

In such circumstances, commercial banks are likely to increase monitoring of the affected companies, scrutinise cash flows more closely and reassess lending exposure until greater clarity emerges from the courts.

Infomerics Nepal said it will undertake further rating actions once there is greater clarity regarding the legal proceedings and their impact on governance, reputation, financial performance and overall credit quality of the affected entities.