Investing in gold schemes, beware of company ratings

Recently, CARE had moved Nathella Sampath Jewellery to ‘Default’ rating based on the available public information

: IJ News Service
27 October 2017 3:11 PM
Reference: 11110

In the wake of recent debacle of Nathella Sampath Jewellery, all the consumers who intend to invest in gold schemes, should be careful and keeping a track of company ratings.

Nathella Sampath is more than seven decades old, and has seven retail showrooms — five in Chennai and one each in Hosur and Vellore. While its revenue growth had been flat, its operating margins had been falling, says a news report.

Most of the banks always insist that companies get a credit rating before they lend to them. And this is a way in which investors in the gold scheme could have averted the trouble simply by looking at the credit ratings, says a news report.

The news report further mentions that in October 2016, Nathella Sampath had been rated by CARE at BBB, one step above least investment grade. The rating agency had then indicated that the company’s average utilisation of funds was almost full, implying that the liquidity position was tight. Later, the company did not share any information for reviewing the ratings. In line with SEBI regulations, CARE moved the rating to “Issuer not co-operating” category in August 2017. This move indicates that the ratings already assigned by the rating agency can no longer be used by the company. Recently, immediately after a customer filed a complaint against Nathella Sampath over a delay in the repayment of his dues, CARE moved the company to “Default” rating, based on publicly available information.

Customers are worried about getting their gold/money back from more than seven-decade old brand. If the investors would have kept track of these rating changes, existing and potential investors may have been suitably warned about impending trouble.

For the unknown, in case of jewellery retailers who are offering gold saving schemes not regulated by either SEBI or RBI, the investors can check rating of the company before making an investment. Ratings above BBB- are investment grade and ratings below that are non-investment grade. ‘Investment grade’ indicates investors can consider putting in their funds. ‘Non-investment grade’ rating is where the investment is unsafe and there is a high likelihood of default.

Source: Hindu Business Line

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