Corporate Ratings
Investor Protection & Risk Management Tool
The sophistication and knowledge of investors varies across segments. At the most vulnerable end of the spectrum are retail investors that put their money in deposits of banks, deposits of NBFIs and schemes / policies of insurance companies. Even SMEs and corporates whose core business is to focus on their operations, often do not have the skill set to analyze the entities before they invest surplus funds in them. Institutional investors like banks, insurance companies, pension funds are considered the most knowledgeable but even within this segment there is a lot of variation depending on their scale and experienced personnel.
Given this background, it is often a very challenging task for regulators to ensure proper investor protection and transparency of information. A good financial reporting setup is the first step and Mauritius has adopted IFRS norms which are as per international best practices. The regulations in Mauritius also cover the financial institutions (banks, insurance, funds, etc). However, compulsory audit and good regulations still allow a lot of flexibility to the companies to follow their own strategy, as they should in an open, competitive economy. But this also leads to different risk profiles of these entities which bring us back to the core issue of how to support investor protection.
A credit rating agency's role in the financial infrastructure is to provide independent opinion on entities based on standardized methodologies. CARE Ratings (Africa) Private Limited (CRAF) is the first CRA in Mauritius and is setup with the objective of providing credit ratings and related services.
The methodologies followed by CRAF are drawn from more than 22 years of experience of its promoter, CARE Ratings, in India that has rated more than USD 1 trillion of debt till date. These methodologies are specialized for different sectors. They also synthesize well with the best practices followed in various segments like Basel norms for banking and Solvency II norms for insurance segment.
CRAF has the following product suite that can be used as tools to manage the risk and protect investors (whether retail , corporate or institutional):
Rating of Bonds / Debentures / Commercial Paper / Deposits
The primary focus of the rating exercise is to assess future cash generation capability and the adequacy to meet debt obligations in adverse conditions. The analysis therefore attempts to determine the fundamentals and the probabilities of change in these fundamentals, which could affect the creditworthiness of the issuer. Debt rating can be done for Bonds, Debentures, Commercial Papers, Certificate of Deposits, Subordinated Debt, Fixed Deposits and other such debt obligations.
Bank Loan Ratings
Used by banks to determine risk weights for their loan exposures, in keeping with the Basel Standardized Risk Assessment framework. The primary focus is to assess the capability of an issuer to meet its debt obligations against a specific line of credit under its respective terms & conditions.
IPO Grading
IPO grading is a service aimed at facilitating the assessment of equity issues offered to public. IPO grading is an independent and professional opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the 'fundamentals' of that issuer.
Corporate Governance Rating:
Corporate Governance Rating (CGR) is an opinion on relative standing of an entity with regard to adoption of corporate governance practices. It provides information to stakeholders about the level of corporate governance practices of the entity. It enables corporate entities to obtain an independent and credible assessment of the quality and extent of their corporate governance. The rating process would also determine the relative standing of the entity vis-à-vis the best practices followed in the domestic as well as international arena. Companies can also use these ratings as reference and set benchmarks for further improvements. Investors and other stakeholders get benefited as they are able to differentiate companies based on degree of corporate governance.
The widespread usage of these tools also leads to more efficiency in the financial system. Risk based pricing is followed and risk measures are standardized. They also reduce the information asymmetry – all investors whether retail or institutional (large or small) shall have access to accepted ratings.
