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Credit RatingCredit Rating

Presented by Chandrika

Sudhir

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Introduction

There are four types of investors in the market.1. Investors having money but not the

investment skill;2. Investors having money and investmentskill both;

3. Investors having investment skill but lessmoney; and4. Investors possessing less money andpoor investment skill.

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What Credit Rating is?

Credit Rating is a simple and easy tounderstand symbolic indicator of theopinion of a credit rating agency about therisk involved in a borrowing program of anissuer with reference to the capability ofthe issuer to repay the debt as per termsof issue. This is neither a general

purpose evaluation of the companynor a recommendation to buy, hold orsell a debt instrument.

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Definition

"A rating is an opinion on the future abilityand legal obligation of the issuer to maketimely payments of the prin ipal andinterest on a spe ifi fi!ed in ome se urity.

The rating measures the probability that theissuer ill default on the se urity over itslife# hi h depending on the instrument#may be a matter of 3$ days to 3$ years ormore. In addition long term ratingin orporate an assessment of the e!pe tedmonetary loss should default o ur#%

Moody's

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Credit Rating - Acronym

& ' &redit (orthiness) ' )isk Analysis* ' *+uity Assessment, ' ,ividend and *arning -rospe ts

I ' Intentions of -romotersT ' Transparen y of rgani/ation

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Credit Rating - Acronym

) ' )elative 0trength A ' Authenti InformationT ' Te hni al AnalysisI ' Industrial &limate of -rofile' et ork Assessment' uidan e to Investors# &ompanies#

and the overnment

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Credit Rating Agency- Defined

"&redit rating agen y" is a ommer ial on ernengaged in the business of redit rating of

any debt obligation or of any pro e t orprogram re+uiring finan e# hether in theform of debt or other ise# and in ludesredit rating of any finan ial obligation#instrument or se urity# hi h has thepurpose of providing a potential investor orany other person any information pertainingto the relative safety to timely payment ofinterest or prin ipal.

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Credit Rating Agencies in India

CRISIL Limited

ICRA Limited

Credit Analysis & Research Ltd.(CARE)

Fitch Ratings India Pri ate Ltd.

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!"# d"es a rating hel$ an In est"r%

The credit ratings provide aninvestor with critical information

to enable him to take an informedinvestment decision based on hisrisk-return preferences. Thesealso help investors to select theappropriate investmentopportunities from a large rangeof options available.

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!"# are credit ratings d"ne%

In general the ratings are based on an in-depth study of the industry as also anevaluation of the strengths andweaknesses of the company.

Some of the factors are :-marketing strategiescompetitive edgelevel of technological development

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Contd.

operational efficiencycompetence and effectiveness of

managementhedging of riskscash flow trends and potentialli!uidityfinancial fle"ibilitygovernment policiespast record of debt servicing etc.

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Pr"cess "f Credit Rating

I - T A A560I0 T- TInformation on 7* onomi 8-oliti al 0ystem )atingIndustry Analysis )ating 5o al 9usiness ' *!er ise

A ounting :inan ial

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How long does a rating remain

valid? #nce a rating has been accepted by the

company CR$s continuously monitor thecorporate and the rating is monitored tillthe life of the instrument. This process isknown as surveillance. %uring thesurveillance period all changes affectingthe company are taken into account and

the rating if necessary is changedupwards or downwards. In other words arating is valid during the life of theinstrument unless it is changed.

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Advantages of Credit Rating

He !s in invest"ent decisionAssurance of safetyChoice of instru"entI"!rove cor!orate i"age

#ider audience of borro$ing%ood for non-!o!u ar co"!anies

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De"erits of credit rating

I"!ro!er disc osure "ay ha!!enI"!act of changing environ"entProb e" for ne$ co"!aniesDo$ngrading by rating agencyPossibi ity of bias e&ist

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Rating 'anks ( )Is

&)A

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Countries having Credit

RatingsAustra ia AAA *+ -AAAChina AA- *SA AA,India ''',a!an AA-

Pakistan '-Russia '''-S(A '''-

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hank /ou.hank /ou.