Duff & Phelps Gets Nod For Sovereign Rating

Duff & Phelps Credit Rating Co, the third largest credit rating agency after Standard & Poors (S&P) and Moody's, has received the finance ministry approval to undertake India's sovereign rating.

The ministrys decision to seek a sovereign rating from the Chicago-based rating agency assumes significance since the world's two leading agencies -- S&P and Moody's -- are virtually split over placing India on investment and non-investment grades. While the Moody's has given an investment-grade rating to India, as per the S&P assessment, the country is still short of an investment-grade status.

To add to the confusion among overseas investors, Moodys has put India on a Rating Watch with negative implications only last month. A high-level team from Duff & Phelps is likely to visit India next month to initiate the rating exercise and hold parleys with top government officials.

 

Duff & Phelps Credit Rating India managing director N C Roy said: "Our advantage vis-a-vis the other international rating agencies in doing a sovereign rating for India is that we are the only one with a presence on the ground." Duff & Phelps Credit holds a 33 per cent stake in the Indian subsidiary.

The Indian subsidiary will work actively with the US rating major in carrying out a due-diligence exercise. The completion of the sovereign rating process by Duff & Phelps is likely to take around three months time. A number of active international funds are eyeing India as an investment destination but the country is only half-way through due to the split of opinion, Roy said.

Moodys has rated India as Baa3 with negative outlook, which is still a investment-grade status. Though S&P has reaffirmed Indias sovereign rating of BB+ with a positive outlook, it is still a notch below the Moodys rating placing the country in the speculative grade. The minimum investment rating for a country by S&P is BBB-.

The investment status for a country is a watershed since it is a key parameter for investment by leading overseas fund managers. Foreign debt instruments from a country which has a sovereign rating below the investment grade are normally considered as junk bonds with a very high degree of risk.

Although Moody's decision to put India on credit watch with negative implications just after the budget presentation created a lot of hue and cry, the stand now appears to have been vindicated following the political crisis in New Delhi. A third sovereign rating at this juncture will weigh the impact of political uncertainties on its economic stability. Moody's had cited unstable political environment, directionless economic policies and deterioration macro-economic policies as the reasons for putting the country on a credit watch.

Duff & Phelps said its credit rating assesment focuses on evaluating the broad thrusts of government's priorities in the context of macro-economic stability, enhancing domestic and international competitiveness, and promoting sound growth and development.