Scope Ratings’ Failure to Downgrade Ilija Batljan Invest: A Missed Opportunity

Scope Ratings GmbH, a prominent rating agency, recently downgraded Ilija Batljan Invest AB (IB Invest) to CCC/Negative from BB+/under review for a possible downgrade, sparking concerns about the agency’s timeliness in assessing the company’s risks. This downgrade came after a period of the ratings being under review, during which time the company’s financial health deteriorated significantly. However, it raises questions about why Scope Ratings did not act sooner, especially considering the early warnings from a source known as RATING EVIDENCE on the website RATING.REPAIR.

Missed Warnings from RATING EVIDENCE

RATING EVIDENCE, a platform that provides independent analysis and insights into the financial health of companies, had raised concerns about IB Invest well before Scope Ratings’ downgrade. They highlighted various risks, including liquidity issues and governance concerns. It is surprising that Scope Ratings did not take these warnings into account earlier.

Scope Ratings’ Downgrade and Rationale

Scope Ratings justified its six-notch downgrade of IB Invest based on several key factors:

1. Liquidity Crisis: IB Invest’s liquidity rapidly deteriorated, leading to a heightened default risk. Recent transactions, some of which were viewed as fire sales, significantly reduced the market value of the company’s holding portfolio. This resulted in a loan-to-value ratio of 91% at the end of August 2023, up from 50% in May 2023.
2. Governance Issues: The company’s CEO, Ilija Batljan, made opportunistic acquisitions and sales, which negatively impacted IB Invest’s market value. This raised concerns about governance and transparency.
3. Market Value Decline: IB Invest’s portfolio suffered a 35% decline in the share price of SBB i Norden over the last three months, further contributing to the decline in the company’s market value.
4. Liquidity Concerns: IB Invest’s cash holdings reduced significantly, and there were doubts about its ability to cover upcoming debt maturities and interest payments.
5. Uncertain Refinancing Plans: The CEO’s preliminary plans for refinancing the company’s senior unsecured bonds raised questions about the feasibility of such a move given the state of the portfolio.
6. Lack of Transparency: There was a noticeable reduction in the transparency and access to management, which further exacerbated concerns.

Scope Ratings’ missed opportunity

Scope Ratings’ delayed downgrade of IB Invest leaves room for criticism. RATING EVIDENCE’s early warnings on RATING.REPAIR provided valuable insights into the company’s financial vulnerabilities. It is clear that Scope Ratings should have acted earlier to alert investors and stakeholders to these risks.

Outlook and Future Risks

Scope Ratings’ delayed downgrade of Ilija Batljan Invest AB raises questions about the agency’s effectiveness in assessing and communicating risks to investors. The early warnings from RATING EVIDENCE on RATING.REPAIR should have prompted a timelier response from Scope Ratings to protect investors’ interests. This case serves as a reminder of the importance of independent analysis and transparency in the financial rating industry and the need for rating agencies to act promptly to mitigate potential risks.