security rating

8/8/2019 Security Rating

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A credit rating assesses the credit worthiness

of an individual, corporation, or even acountry. Credit ratings are calculated fromfinancial history and current assets andliabilities.

A credit rating tells a lender or investor the

probability of the subject being able to pay

back a loan.

A poor credit rating indicates a high risk of

defaulting on a loan, and thus leads to high interest rates



An assessment of the credit worthiness of individuals

and corporations. It is based upon the history of borrowing and repayment, as well as theavailability

of assets and extent of liabilities.

Credit is important since individuals andcorporations

with poor credit will have difficulty finding

financing,and will most likely have to pay moredue to the riskof default



Moodys¶: ³Ratings are designed exclusively f or the purpose of

gradingbonds according to their investmentsqualities´.

Australian Ratings: µA corporate credit rating pr ovides lenders with a simple

system of gradation by which the relativecapacities of companies to make timely

repayment of interest and principal on aparticular type of debt can be noted¶.



Credit rating is an assessment of the capacity

of the issuer of debt security by anindependent agency, to pay interest and repayprincipal as per the terms of issue of debt.

The ratings are expressed in code numbers

which can be easily comprehended by the lay

investors.

Credit rating, as exists in India, is done for a

specific security and not for a company as a

whole.

A debt rating is not one time evaluation of

credit risk, which can be regarded as valid for

the entire life of the security.

A credit rating does not create fiduciary relatinship between the agency andthe users



unc ons o re a ng

Agencies

Superior informationLow cost informationBasis for proper risk, return &

Trade off

Healthy discipline on corporate

borrowers

Formulation of public policy

guidelines on Institutional investmen



ene s

Low cost inf ormationQuick investment decision

Independent investment

decision

Investor pr otection



Benefits to rated companie

Sources of additional certificationIncrease the investor population

Forewarns risk

Encourages financial Discipline

Merchant bankers job made easy

Foreign collaborations made easy

Benefits the industry as a whole

Low cost of borrowingRating as a marketing too



CRA in India

Credit Rating Information Services Limited (CRISIL)

Investment Information and Credit

Rating Agency of India (ICRA) Credit Analysis and research

(CARE)

Duff Phelps Credit Rating Pvt. Ltd(DCRIndia



Services

Ltd The first credit agency floated on January 1, 1988.

It was jointly started by ICICI and UTI with an equity capital of 4 cr ores.

CRISIL is India's leading rating agency, and is the

f ourth largest in the world.

With over a 60% share of the Indian Ratings market,

CRISIL Ratings is the agency of choice for issuers and

investors. CRISIL Ratings is a full service rating agency that offers a

comprehensive range of rating services. CRISIL Ratingsprovides the most reliable opinions on risk by combiningits understanding of risk and the science of building riskframeworkswith a contextual understandinof business.



The principal objective of CRISIL is to rate the

debt obligations of Indian companies.Its ratingguides the investors about the risk of timelypayment of interest and principal on a particular debt instrument.

CRISIL's rating pr ocess and rating committee are

designed to ensure that all assigned ratings arebased on the highest standards of independenceand analytical rigor.

The rating committee comprises members whohave the pr ofessional competence to meaningfully

assess the credit analysis that underlies therating, and have no interest in the entity beingrated. A team of analysts carries out the credit analysis



Debenture Rating SymbolsHigh Investment Grades:AAA(triple A):Highest SafetyAA (double A): High SafetyInvestment Grades:A: Adequate Safety

BBB (triple B): Moderate SafetySpeculative Grades:BB: Inadequate Safety

B: High Risk

C: Substantial Risk D: Default



Rating Agency of India (ICRA

ICRA Limited (an Associate of Moody's

Investors Service) was incorporated in 1991 as an independent and professional company.

ICRA is a leading provider of investment

information and credit rating services in India.

ICRA¶s major shareholders include Moody's

Investors Service and leading Indian financial institutions and banks.

With the growth and globalisation of the Indian

capital markets leading to an exponentialsurge in demand for professional credit riskanalysis, ICRA has been proactive in widening

its service offerings, executing assignmentsincluding credit ratings, equity gradings,specialised performance gradings and mandated



In addition to being a leading credit

rating agency with expertise in virtuallyevery sector of the Indian economy,ICRA has broad-based its services for the corporate and financial sectors, bothin India and overseas, and currentlyoffers its services under the following

banners:

Rating Services Inf ormation,Grading and Reasearch ServicesAdvisory ServicesEconomic Research Outsourcing



IICRA was set up by Industrial Finance Corporation of India on 16th January

1991.

It is a public limited company with an authorized share capital of 10 cr ores.

The initial paid up capital of Rs. 3.50

cr ores was subscribed by IFC, UTI, LIC, GIC SBI and others



m e

(CARE)

The CARE was pr omoted in 1993 jointly with investment companies, banks and

finance companies.

Services offered by CARE are Credit rating

Inf ormation Service

Equity Research et

security rating

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