06-12-2012, 01:16 PM
Credit Rating
1Credit Rating.ppt (Size: 693 KB / Downloads: 37)
Credit Rating is the symbolic indicator of the current opinion of rating agency regarding the relative ability and willingness of issuer of a financial( debt) instrument to meet the ( debt) service obligation
Rating Defined BY SEBI
As a opinion regarding securities expressed in the form of standard/symbols in any other standardized form assigned by a credit rating agency and used by the issuer of such securities to comply with a requirement specified by SEBI regulations
Regulatory Framework
Registration of Credit Rating Agencies
Registration with SEBI
The application for the grant of certificate of registration should be made to the sebi accompanied by a non refundable fee of Rs. 25000
Credit rating agency is a body corporate engaged or proposed to be engaged in the business of rating of securities offered in way of public/ rights issues
Promoter of Credit rating agency
Credit rating agency can be promoted by
Public Financial institutions
Scheduled bank
Foreign bank operating in India with RBI approval
Any company incorporated under Companies Act having networth of minimum of Rs. 100 crore as per its audited annual accounts for the previous five years prior to filing of the application with SEBI
Eligibility Criteria
The agency is set up and registered as a company
Has specified rating activity as one of its main objects in Memorandum of association
Minimum networth of Rs.5 crore
Its promoters have professional competence, financial soundness and a general reputation of fairness and integrity in business transaction
General Obligations
Agreement with client
Rights and responsibilities of each party
Fee to be charged
Client agreement to co-operate in order to enable the CRA to arrive at and maintain true rating
Disclosure of CRA to the client regarding the rating assigned to its securities
Clients agreement to disclose in the offer document
Clients agreement to obtain a rating from atleast two difference CRA for any issue of debt securities for Rs. 100 crore or more
General Obligations
Monitoring of Rating
CRA should continously monitor the rating of securites rated by it during their life time
It should disseminate the information regarding newly assigned ratings and changes in earlier rating promptly through press release or website or to respective regional stock exchange
Objectives
To assist both individual and institutional investors in making investment decisions in fixed interest securities
To enable companies to mobilise funds in large amounts from wide investors base
TO enable intermediaries to place debt instruments with investors by providing them with an efficient marketing tool
To provide regulators with the market driven system for bringing about discipline and a healthy growth of capital markets
Rating Process for New Issue
Rating agreement and Assignment of Analytical Team
Starts with issue of rating request letter by the issuer of the instrument
Signing of the rating agreement
On receipt of request CRA assigns an analytical team comprising two or more analyst. Once of whom would be the lead analyst and would serve as the issuer’s primary contact
The analyst should be the expert in the relevant business area
Meeting with Management
Copies of existing loan agreements along with recent compliance letters
A certified copy of resolution adopted by the board of company authoursing the issuance of commercial paper or any other shortterm instruments
List of banks, showing line of credit and contact officers for each short term borrowings