Crisil Rates Local Arms Independent Of Intl Ratings

The Credit Rating Information Services of India (Crisil) has rated the local subsidiaries of a dozen foreign firms already possessing an international rating and planning to raise either debt or equity here.

The ratings, however, have not been made public, said R Ravimohan, managing director of Crisil at a corporate and financial institutions briefing organised by Standard and Poor's and Crisil here yesterday. "There will be no automatic transfer of S&P's ratings of the parent companies to Crisil, while rating its subsidiaries here, " emphasised Ravimohan. While as a general rule, companies which have a AAA or AA rating internationally would normally get a AAA rating here, rating those with below AA by S&P was more tricky, he said.

 

In case of rating companies raising rupee resources with credit enhancement from the parent, the rating agency would first examine the nature of the credit enhancement mechanism. If it was an irrevocable guarantee, the rating assigned would be the same as that of the guarantor. If not, the agency would look at how much of this would actually flow through in the event of a default, he said.

"Due to capital restrictions in India, we first evaluate if all government clearances - ECB approval in case of a debt issue and FIPB approval in case of equity - have been obtained. This ensures that there would be no problem on the repayment front in case of a default by the arm," he added.

Having resolved this, the rating would be assigned on Crisil's rating scale rather than S&P's since the transaction is in the domestic currency. "To the extent to which there are any information gaps, we would rely heavily on Standard and Poor's," he added.

On the authenticity of ratings assigned, Chris Legge, director corporate rating, conceded that rating agencies were susceptible to the risk of misinformation or selective information.

For example, S&P had foreseen certain weaknesses of the Indonesian economyrmanent capital, total debt, interest coverage and ratio of funds from operations to total debt.

A comparison of a sample of 700 Indian corporates and a cross section of international companies with A, BBB and BB ratings revealed that local firms have shown a steady growth in the debt component for the past three years, which could be a warning signal, said Legge.

In a presentation on S&P's approach to rating state owned enterprises, Craig Parker, associate director, corporate ratings, S&P, said that ratings should be given on a stand-alone basis and then the impact of government ownership - present and future - should be factored in.