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CORPORATE RATING METHODOLOGYCORPORATE RATING METHODOLOGY

CREDIT RATING AGENCY OF BANGLADESH LIMITED

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RATING PROCESS FLOW

Rating Frame Work

Analysis and Evaluation

Rating Committee Meeting

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Final Rating

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CRAB’s Rating Methodology

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FACTOR : INDUSTRY RISK ANALYSIS

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FACTOR : BUSINESS RISK ANALYSIS

SIZE AND SCALESize and ratings end up being highly correlated

BUSINESS MODEL

COMPETITIVE POSITION

DIVERSIFICATION

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DIVERSIFICATION

Product, Line of Business, Customer, Geographical

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Business Risk Analysis

Business Model

Business model dictates to a large degree its ability to generate and sustain operating cash flows and the stability of those flows

Ubiquitous provider of product and services

Strong representation in market segment

Predictable revenue with diversified source

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Predictable revenue with diversified source

Product Engineering Capability

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Competitive Position

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Business Risk Analysis

Competitive Environment

Relates to market share but not identical

Why Important ?

Identify markets which are highly competitive regardless of whether players with strong position areapparent

Monopoly, Duopoly, Oligopoly or fragmented structure

Why Important ?

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Competitive environment directly impacts its pricingPower, marketing expenses

CRAB considers CE by looking at its number of players

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Sustainability is Key

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FACTOR : OPERATING ENVIRONMENT

• Regulatory and Political Framework

• Technology Risk

CAPEX/REVENUESCAPEX/REVENUES

• Market Share & Growth

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Operating Environment

Regulatory Environment

Helps or hinders a company to predictably grow its return on investment : Positive, Negative or Neutral ?

Factors ?

Breadth and scope of various regulations

Challenges in estimating the price/volume dynamic

Competitive responses of the companies affected

Factors ?

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Competitive responses of the companies affected

Predictions on how revenues and costs would have evolved

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Technology

How exposed are the issuer’s revenues, profits, cash flows and assets to technological change ?

How well positioned is it to deal with technological How well positioned is it to deal with technological change ?

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Operating Environment

Market growth

Look into the growth pattern, rate and length

h h fl l d lEither growth rate is flat, accelerating or declining

Growth relative to expansion of GDP and GDP/capita

Organic expansion : What multiples of GDP growth

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g p p g

Tele penetration rate: low, high or medium ?

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Operating Environment

Market growth

Type of products adopted and the degree of per capita expenditure

ARPU usually correlates positively with per capita GDP ; indicator of future growth

Product innovation

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Operating Environment

Market share

Relative industrial market share of each player and trends

Why Important ?

Ability to exercise control over the nature and pace of development

How it is perceived by customers

Abilit t l ff i ti biliti

Why Important ?

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Ability to leverage off existing capabilities

Flexibility to innovate without having to make large bets

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Operating Environment

Revenue PositionMarket share

Relative industrial market share of each player and trends

Why Important ?

Revenue Position

Customer Base

Degree of influence with regulators

Entry barrier

Why Important ?

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Either enjoying immense brand equity regarding quality of service and network coverage

Large operator enjoys established distribution capabilities

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FACTOR : STRATEGIES AND FINANCIAL POLICIES

• Strategies and Plans

• Acquisition strategies:

• strategic “fit”• strategic fit

• diversification objectives

• market share gains

•Availability of excess cash resources

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Availability of excess cash resources

• Financial Policies

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Strategy and Execution

Growth ambitions and reinvestment requirements

Management’s ambitions for market share

Need for capital investment to support growth

Clarity of the strategy

Management’s ability to define the steps required to implement it

Criteria for measuring success

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Targeted growth in revenue

Potential for volatility of revenue

Return on investment on EBITA basis

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Strategy and Execution

Financial policies

Management’s appetite for future financial risk

Desire for certain outcomes as to its capital structureDesire for certain outcomes as to its capital structure

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FACTOR: MANAGEMENT EVALUATION

Track record of management

Quality of management’s business plan

Its record in executing previous plans

Degree of operational and financial flexibility

Management’s performance through economical cycle,

Its record in executing previous plans

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g p g yas well as technological, supply-demand and other cycles

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FACTOR: CORPORATE GOVERNANCE

From creditor’s perspective : What aspect of corporate governance are relevant ?

How should creditors assess the quality of corporate governance ?

How should that assessment factor into the credit decision?

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How should that assessment factor into the credit decision?

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FACTOR: OPERATING PERFORMANCE

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FACTOR : FINANCIAL STRENGTH

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FACTOR : SECURITY ANALYSIS

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FACTOR : RELATIONSHIP RISK

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GENERIC RATING FACTORS

i idiLiquidity Management

• Internal sources of liquidity

• External sources of liquidity

• Bond

Bank Credit Facilities• Bank Credit Facilities

• Equity Issuance

Financial Covenants and Triggers

Fi i l R ti S t d Di l

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Financial Reporting System and Disclosures