Beruflich Dokumente
Kultur Dokumente
-Kanika Khurana
Symbolic Indicator
A simple system of gradation which is easy to understand by investors Long term debt ratings Investment Grades: AAA (Highest security), AA (High Safety), A (Adequate Safety), BBB (Moderate Safety) Sub Investment/ Speculative Grades: BB (Inadequate safety), B (High Risk), C (Substantial Risk), D (Default) + or - signs may be assigned to reflect comparative standing within the category Short term debt ratings P-1 (Highest safety), P-2 (High safety), P-3 (Adequate Safety), P-4 (Inadequate safety), P-5 (Default) + sign may be assigned to reflect comparative standing within the category Various other symbols for rating of structured obligations, mutual funds, Indian states, healthcare institutions, real estate developers etc.
Current opinion
Current- pertains to a specific period of time Implication- needs to be reviewed
Opinion- does not amount to recommendation to buy, hold, sell an instrument; Does not take into account market prices, investors risk preferences etc.
Rating agency
Independent professional organizationopinions may differ because analysis is independent Implication- different ratings for same instrument
Rating Methodology for Manufacturing Companies Industry Risk- Growth prospects, market position and image of issuer, other industry characteristics (demand situation, bargaining power, sensitivity to economic cycles etc.) Business Risk- Level of technology, Inventory and receivables management, expense levels and profitability, performance in relation to industry benchmarks, trend of margins, legal position (debt covenants, litigations etc), parent support, size of company Financial Risk- existing financial position, profitability, financial flexibility, liquidity/ cash flow adequacy, leverage, past debt service record, accounting quality, earnings prospects Management Strength- Track record, competence, capabilities under stress, industrial relations, personnel policies, succession plans
Regulatory Environment- Structure and regulatory framework of the financial system, trends in regulation/ deregulation and their impact on the company Fundamental Analysis Capital Adequacy: Net worth vis--vis volume and risk profile of assets Resources: Funding profile, cost and tenor of funds Asset Quality: Credit risk management systems, credit monitoring, sector risk and exposure, management of problem credits Liquidity Management: capital structure, liquid assets, asset-liability matching Profitability and financial position: historic profits, accretion to reserves, spread on funds deployment Interest and tax rate sensitivity
CRISIL
Promoted in 1987 by ICICI Ltd and UTI Commenced operations in Jan 1988 Pioneered credit rating in India Largest CRA; has diversified into other advisory services IPO in 1993 Strategic alliance with Standard and Poors (S&P) Group in 1996 Rates mandated debt obligations of Indian companies, chit funds, real estate developers, NBFCs, Indian states, Business schools, SMEs; Grading of healthcare institutions, IPOs etc. Symbols-AAA, AA etc.; P-1, P-2, P-3 etc.
ICRA
Promoted by IFCI and other shareolders (UTI, LIC, GIC, HDFC Ltd etc) in 1991 Entered into MOU with Moodys Investor Services Rates mandated debt obligations of Indian companies, structured finance, corporate governance, SMEs, Mutual Funds; Grading of IPOs, MFIs, Equity grading etc. Symbols- LAAA, LAA etc; A1, A2, A3 etc.
CARE
Promoted by IDBI jointly with other financial institutions and banks Commenced operations in 1993 Has diversified into other financial and advisory services in a very limited way Rates mandated debt obligations of Indian companies, corporate governance, securitization, insurance companies, SMEs; Grading of IPOs, MFIs etc. Symbols- CARE AAA, CARE AA etc; PR1, PR2 etc.
FITCH
Was a JV between International rating agencyDuff and Phelps, and JM Financials, incorporated in 1995 Now a subsidiary of the global rating agencyFITCH Rates mandated debt obligations of Indian companies, structured finance, Mutual Funds, SMEs; Grading of IPOs etc. Symbols- AAA (ind), AA (ind) etc; F1, F2 etc.
Rating Committee
Rating report presented Rating decide after assessment of all factors and key issues Issuer does not participate in this step
Dissemination to Public
If accepted, CRAs disseminate rating along with rationale for rating
Structured Finance
Estimation of expected loss (probability of default X severity of loss) to the investor on the rated instrument, under various possible scenarios Factors: arrangements for payment of instrument like guarantors, asset backing etc. 4 major categories: Asset backed Securitisation (ABS), Mortgage backed Securitisation (MBS), Collateralised Debt Obligation (CDO), Future Flow Transaction (FFT)
Bond Fund
Opinion on credit quality of bond funds underlying portfolio holdings (mainly money market instruments) Factors considered: Credit associated with securities in fund portfolio, Systems and procedures followed by funds, Management quality and expertise
Healthcare Institutions
Opinion on relative quality of healthcare delivered by the institution to its patients (Grade is applicable for single facility) Not an opinion on outcome of any treatment/ surgery, suitability of organization for any ailment, recommendation to provide funds to that institution etc. Based on medical specialties, quality of support services, regulatory compliance, financial performance, management evaluation, hospital mission and policy, patient rights, nursing care Benefits- Hospitals: improved credibility which enhances potential business revenues; Patients: ability to choose healthcare institutions on basis of unbiased assessment; Insurance companies-linking level of premium with grades assigned; Third-party administrators: objective criteria in selection of hospitals
Corporate Governance
Opinion regarding extent to which organization accepts and agrees to codes and guidelines of corporate governance practices that serve interests of stakeholders Aspects examined- ownership structure, stakeholder relations, financial transparency, information disclosure, Board structure, management processes
SME Rating
Opinion on relative degree of capability to repay interest and principal Based on factors like marketing strategies, competitive position, technological development, operational efficiency, management effectiveness, cash flow trends, liquidity, financial flexibility, pas debt servicing record, government policies relating to industry
Equity Grading
Opinion on relative quality of equity shares on the basis of assessment of underlying fundamentals of the company Done by ICRA under EPRA (Earnings Prospects and Risk Analysis) Scheme at the instance of issuers
Chit Funds
Ability to make timely payment of prize money to the subscribers, relative degree of risk associated with subscription to chit series floated by chit funds Rating enhances marketability of chits, widens access to subscription and provides objective valuation of its strengths and weaknesses
Municipal Corporations
Evaluation of inherent financial strength of corporation Factors considered- Administrative and legal structure, Economic factors and service provision, Municipal finances, Debt profile and future borrowing needs, quality of administration and management
IPO Grading
Class Presentation