Debt
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.
Issuer Rating
It is an issuer-specific assessment of the credit risk. It is similar to long-term instrument ratings except for the fact that they are specific to an issuer and not specific to any of the issuer's instruments. Issuer Rating factors in the expected performance of the entity over an intermediate time horizon of around three years and reflects the capability of the entity as regards to servicing of its financial obligations. Issuer Rating would help lenders/investors to evaluate credit quality of the issuer and would facilitate an informed lending/investment decision.
Structured obligation ratings/securitization
CRAF can provide credit rating services for structured debt products based on a comprehensive rating methodology. CRAF's Structured Finance Rating involves extensive analysis of various risk factors viz Credit Risk, Market Risk, Counter-party Risk, Legal Risk and Other Risks associated with structured debt obligation. Structure finance ratings indicate the degree of credit protection available from underlying asset(s), structured mechanism and credit enhancement, if any, for timely servicing of debt obligations. For Structured Obligations, CARE Ratings assigns suffix '(SO)' to the rating symbol.
Insurance
CRAF has a comprehensive methodology for Claims Paying Ability rating (CPA) / Financial Strength Rating rating (FSR) for insurance companies. The rating process involves analysis of qualitative factors like an insurer's business fundamentals, its competitive position, its management, ownership structure, insurance regulations, underwriting and investment strategies. Quantitative factors involve analysis of the company's risks underwritten, asset quality, profitability, liquidity, solvency and asset-liability management method.
SME
SME Ratings indicate the relative level of creditworthiness of an SME entity, adjudged in relation to other SMEs. It is an issuer specific rating reflecting overall general creditworthiness. It is a onetime assessment of credit risk. The rating exercise would take into account the industry dynamics, operational performance, financial risk characteristics, management capability and the future prospects of the entity for arriving at the overall risk profile of the SME unit. The rating methodology will be calibrated and appropriately modified so as to cover all the risk associated with each country in Africa.
What is Credit Rating?
Credit rating is essentially the opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligations as and when they arise.
How are CRAF's ratings in Mauritius different from the ratings provided by global rating agencies?
CRAF is a domestic credit rating agency in Mauritius and it is licensed by the FSC.
CRAF provides ratings on a 'Domestic Scale'. That is to say that credit rating for an entity domiciled in Mauritius would be assigned based on the credit quality of the company relative to the sovereign credit risk (of Government of Mauritius). As against this a rating on 'Global Scale' would compare a Mauritian entity across the globe. The domestic scale ratings of CRAF would lead to finer risk differentiation amongst entities in Mauritius.
What are the benefits of getting rated?
A rating provides an independent opinion on the entity getting rated. CRAF will provide high quality rating based on the expertise built by its parent CARE Ratings with over 22 years of rating experience.
Rating can be used by lenders / deposit holders / bond investors of the company prior to taking exposure in the rated entity.
Rating is supported by a Rating Rationale that provides a detailed analysis on the rated entity and can be used by the company with its stakeholders
Why do rating agencies use symbols like AAA, AA, rather than give marks or descriptive credit opinion?
The great advantage of rating symbols is their simplicity, which facilitates universal understanding. Rating companies also publish explanations for their symbols used as well as the rationale for the ratings assigned by them, to facilitate deeper understanding.
Does credit rating constitute an advice to the investors to buy?
It does not. The reason is that some factors, which are of significance to an investor in arriving at an investment decision, are not taken into account by rating agencies. These include reasonableness of the issue price or the coupon rate, secondary market liquidity and pre-payment risk. Further, different investors have different views regarding the level of risk to be taken and rating agencies can only express their views on the relative credit risk.
What kind of responsibility or accountability will attach to a rating agency if an investor, who makes his investment decision on the basis of its rating, incurs a loss on the investment?
A credit rating is a professional opinion given after studying all available information at a particular point of time. Nevertheless, such opinions may prove wrong in the context of subsequent events. Further, there is no privity of contract between an investor and a rating agency and the investor is free to accept or reject the opinion of the agency. Nevertheless, rating is essentially an investor service and a rating agency is expected to maintain the highest possible level of analytical competence and integrity. In the long run, the credibility of a rating agency has to be built, brick by brick, on the quality of its services.
How reliable and consistent is the rating process? How do rating agencies eliminate the subjective element in rating?
To answer the second question first, it is neither possible nor even desirable, to totally eliminate the subjective element. Ratings do not come out of a pre-determined mathematical formula, which fixes the relevant variables as well as the weights attached to each one of them. Rating agencies do a great amount of number crunching, but the final outcome also takes into account factors like quality of management, corporate strategy, economic outlook and international environment. To ensure consistency and reliability, a number of qualified professionals are involved in the rating process. The Rating Committee, which assigns the final rating, consists of professionals with impeccable credentials. Rating agencies also ensure that the rating process is insulated from any possible conflicts of interest.
Why do rating agencies monitor the issues already rated?
A rating is an opinion given on the basis of information available at a particular point of time. As time goes by, many things change, affecting the debt servicing capabilities of the issuer, one way or the other. It is, therefore, essential that as a part of their investor service, rating agencies monitor all outstanding debt issues rated by them. In the context of emerging developments, the rating agencies often put issues under credit watch and upgrade or downgrade the ratings as and when necessary. Normally, such action is taken after intensive interaction with the issuers.
Do issuers have a right of appeal against a rating assigned?
Yes. In a situation where an issuer is unhappy with the rating assigned, he may request for a review, furnishing additional information, if any, considered relevant. The rating agency will, then, undertake a review and thereafter indicate its final decision. Unless the rating agency had overlooked critical information at the first stage, (which is unlikely), chances of the rating being changed on appeal are rare.
CRAF follows a transparent pricing mechanism for undertaking rating of various products. The fee structure is usually computed as a percentage of debt amount to be rated.
Initial Rating Fee
Fixed Deposits
0.10% of the amount of Fixed Deposits.
Bonds/Debentures
0.10% of the issue amount.
Commercial Paper
0.10% of the issue amount.
Issuer Rating
0.10% of all the outstanding debts as on last balance sheet date.
Bank facilities
0.10% of the sanctioned amount.
SME
MUR 75,000 (upto MUR 20 million turnover), MUR 100,000 (MUR 20 million to MUR 35 million turnover) and MUR 125,000 (greater than MUR 35 million turnover)
Annual Surveillance Fees on FD/Debentures/CP/Bank Facilities : 0.05% of the amount outstanding under the rated instrument.
Annual Surveillance Fees on Issuer Rating - 0.05% of the amount outstanding under the rated instrument.
Credit Reports :Fees applicable will depend on the scope and coverage of each report and can be obtained on specific request.
Notes :
Full rating fee is to be paid upfront.
CRAF sometimes offers discounts on the above Fee structure keeping in view various factors such as quantum of debt to be rated, group structures, existing relationships and market dynamics.
Rating fees are computed separately on each instrument issued.
Issuers are liable to pay rating fees, regardless of whether they accept CRAF’s rating or not.
Out-of-pocket expenses, if any will be charged to the client on actual basis. CRAF will not be obliged to disclose details of such expenses. In case of roll-over of CPs, no rating fee would be charged for any roll-over within one year of the original rating. For any increase in the amount of issue, additional fee at normal rate will be charged. For any roll-over after a year from the original rating, additional fee at the rate applicable for annual surveillance will be levied.
VAT will be charged extra as applicable.
CRAF reserves the right to make changes in the fee structure at any time
