pakistan credit rating agency limited

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    Credit Rating Agencies

    1-Pakistan Credit Rating Agency Limited (PACRA):

    June 15, 1994 - a joint venture agreement is signed between International Finance

    Corporation (IFC) , Fitch Ratings , and Lahore Stock Exchange. This agreement heralded the

    creation of Pakistans first credit rating agency, the Pakistan Credit Rating Agency Limited

    (PACRA) on August 18, 1994. Introducing credit ratings at a time when even the concept of

    free capital market was not well-rooted in the country was no easy feat; however, PACRA

    accomplished just that. PACRA announced its first opinion in less than three months.

    PACRA fast gained a recognition on the perceived value and integrity of its opinion. During

    the initial years, PACRA relied heavily upon its technical partner, Fitch Ratings. The

    technical collaboration with a global rating agency ensured that PACRA developed a high

    quality rating process. This remained intact even after the mutually agreed decision in 2002

    to terminate the said arrangement. Today, PACRA is recognized as a national rating agency

    by apex regulators of the country, the Securities and Exchange Commission of Pakistan and

    an external credit assessment institution (ECAI) by the State Bank of Pakistan. It has a

    vibrant presence in the region. In 2010, PACRA moved across borders and started providing

    technical collaboration to National Credit Ratings in Bangladesh. PACRA is one of founding

    members of Association of Credit Rating Agencies in Asia (ACRAA).

    Rating Process of PACRA:

    Credit rating is an interactive process relying primarily on information and interaction with

    the rater. It is supplemented with information obtained from outside independent sources. The

    entire process is aimed at evaluating financial strength of an entity to timely meet its financial

    obligations. PACRA follows a rigorous, objective and structured rating process at the onset

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    of rating relationship to arrive at a rating opinion. The rating process, subscribes to rigorous

    quality standards. PACRA has developed comprehensive methodologies for different

    segments of entitiesBanks, NBFCs, Insurance, AMCs, Corporate. We evaluate and analyze

    both qualitative and quantitative aspects and captures factors affecting the entity in the short-

    term and long-term. Our analyses broadly focus on ownership and governance structure of

    the organization, its management and control environment and evaluation of business and

    financial risks.

    Following is the Rating process of PACRA.

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    Rating Scale of (PACRA):

    Long-Term Rating: Short-Term Rating:

    1-AAA: Highest Credit Quality 1-A1+: Highest Timely Repayment

    2-AA: Very High Credit Quality 2-A1: Strong Timely Repayment

    3-A: High Credit Quality 3-A2: Satisfactory Timely Repayment

    4-BBB: Good Credit Quality 4-A3: Adequate Timely Repayment

    5-BB: Speculative 5-B: Susceptible Timely Repayment

    6-B: Highly Speculative 6-C: Inadequate Timely Repayment

    7-CCC, CC, C: High Default Risk 7-D: High Risk Default

    2-JCR-VIS Credit Rating Company Limited:

    JCR-VIS is Pakistan's only data bank and financial research organization, operating as a Full -

    service rating agency and known for providing high quality independent rating services in

    Pakistan. Initially the company was incorporated as a joint venture between Vital Information

    Services (VIS) , Karachi Stock Exchange, Islamabad Stock Exchange and Duff & Phelps Credit

    Rating Co. (DCR) back in 1997.Subsequent to DCRs merger with Fitch IBCA, DCR sold

    its interests in DCR-VIS to VIS. In 2001 JCR and VIS entered into a Joint Venture Agreement

    whereby JCR acquired 15% share in DCR-VIS Credit Rating Co. Ltd. of Pakistan. As a result of

    this agreement, the name of the company changed from DCR-VIS Credit Rating Co. Ltd. to JCR-

    VIS.

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    Rating Scales of JCR-VIS:

    AA

    Ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely

    payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events

    A

    ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is

    considered strong.

    BBB

    Ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of

    financial commitments is considered adequate.

    BB

    Ratings indicate that there is a possibility of credit risk developing, particularly as a result of adverse economic

    change over time; however, business or financial alternatives may be available to allow financial commitments

    to be met.

    B

    Ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial

    commitments are currently being met; however, capacity for continued payment is contingent upon a

    sustained, favourable business and economic environment.

    CCC, CC, C

    Default is a real possibility. A CC rating indicates that default of some kind appears probable.

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    Credit Rating Process:

    Clients:

    Signs agreement for an initial rating.

    Submits preliminary information materials.

    CR-VIS

    JCR-VIS:

    Conducts a preliminary study.

    Submits a detailed questionnaire to the issuer/client.

    Client

    Clients:

    Provides detailed information in response to detailed

    questionnaire.

    JCR-VIS:

    Conducts pre due diligence meeting analysis.

    Conducts due diligence meetings (takes 4 -5 weeks).

    J

    JCR-VIS:

    Conducts post due diligence analysis.

    Brief for internal rating committee meetings is prepared.

    CR

    JCR-VIS:

    Sub Committee recommends preliminary/initial rating.

    Rating Committee decides the preliminary/initial rating.

    Client

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    Clients:

    Receives the rating rationales and rating issues.

    CR

    JCR-VIS:

    Notifies issuer of the preliminary/initial rating, deliberates on

    appeals by client, if any.

    Client

    Clients:

    Consents to release of preliminary/initial rating to the public in

    case of non-mandatory ratings.

    JJC JCR-VIS:RCR-VIJ

    Releases the preliminary/initial rating to the press (takes2 - 3

    w e e k s ) .