Corporate Sector Ratings

 

Acuité has an experience of over 5 years in corporate ratings excluding that in the SME sector. We have a significant coverage across manufacturing, trading and service sectors and have outstanding ratings across small, mid and large corporates.

Acuité's rating approach in corporate sector is significantly driven by a comprehensive evaluation of business risks and the quality of management. While the evaluation of the financial risk is important, we believe that business and management risks are, in a way, a leading indicator of financial risks.

The broad methodology for arriving at a corporate rating is as follows:

  • Business evaluation - industry dynamics, market position, operating efficiency, peer benchmarking
  • Management evaluation - integrity, governance standards, competence and risk philosophy
  • Financial evaluation - present and future financial position, ratio analysis with adjustments (if any), cash flow analysis, project risks and financial flexibility.

The above framework provides a standalone credit quality of the rated entity. Further, we look into the following aspects:

  • Any support extended or expected from the parent/s or the major sponsors or the corporate group or from the government (if it is a public sector entity); such support is evaluated through a structured notch-up framework
  • If the business operations are highly integrated with the parent or a set of group companies, a consolidated approach is considered; such a consolidation approach is arrived at only through a structured scoring framework. Consolidation of business and financial profiles, however, may not lead to an equation of ratings of the entities being consolidated. 

Acuité has extensive ratings criteria on corporate sector, notch-up for support and consolidation which is available on the website: http://acuite.in/rating-criteria.htm
Acuité rates the whole range of corporate debt categories including, but not limited to:

  • Long term debt instruments such as bonds, NCDs and preference shares
  • Short term debt instruments such as Commercial Paper (CP) and short term NCDs
  • Bank loans of all types including CC, WCDL, term loans and non-fund based facilities such as LC, BG among others.
  • Fixed Deposits (FDs)

While the methodology for rating the long or short term debt instruments are largely similiar, there are nuances that are also taken into account while rating specific debt instruments.

Bonds and NCDs are the most common long term debt instruments in the market. Acuité rated its first bond instrument in 2012. Subsequently, it has rated a significant number of bond/NCD issuances by both private sector and public sector enterprises. Acuité's ratings have been well accepted by domestic long term investors.

In April 2018, Acuité also rated its first municipal bond.

Such long term instruments have a maturity greater than a year and are therefore rated on the standard long term rating scale (ACUITE AAA to ACUITE D).

We believe that the Indian bond markets will continue to grow at a healthy rate and Acuité is suitably positioned to provide rating opinions that will be of sustainable value to the investors in the debt capital markets.

Acuité has the capability to rate bonds and NCDs with higher complexities such as perpetual bonds and optionally convertible debentures given the rich experience of both its analytical team and the Rating Committee. 

SHORT TERM DEBT INSTRUMENTS (CP/STD)

Acuité rates all types of short term debt including Commercial Paper (CP) and Short Term Debt (STD).

CP is the most popular short term instrument in Indian money markets and we have assigned a significant number of CP ratings. The first CP was rated in the year 2015.

Since such instruments have a tenure of less than a year, the ratings are assigned on a short term scale (ACUITE A1 to ACUITE D).

Beyond CP, the short term debt instruments that are rated by Acuité also include:

  • Short term NCD
  • Inter corporate deposits
  • FDs with tenure up to 1 year

Acuité has a specific mapping of the long term rating scale to the short term scale. All short term ratings will have a linkage to the long term rating of the issuer (may not be assigned but remain implicit). While the rating methodology for both long and short term ratings is largely identical, there are additional factors that are given attention for the latter, such as the liquidity position of the borrower and the availability of back-up funding mechanisms in case of a disruption in the markets. 

BANK LOAN RATINGS

Banks operating in India are required to comply with Reserve Bank of India's (RBI) Capital Adequacy Framework under Basel II and are required to use credit ratings assigned by External Credit Assessment Institutions (ECAI) accredited by RBI. The risk weights on the individual corporate exposures for arriving at the specific capital allocation are linked to the external rating. Therefore, the banks' ability to take exposure to a particular corporate and to offer a competitive pricing depends to a significant extent, on the external rating. In addition to meeting the regulatory requirements, banks also use such external credit ratings as an independent view that can complement their internal credit opinion.

Acuité received its accreditation from RBI for bank loan ratings in 2012 and has already completed over 5,000 such ratings since that period. It has a significant market share today in the bank loan rating segment, reflecting its wide acceptance among the bankers.

Our bank loan ratings encompass enterprises of all sizes with bank facilities ranging from Rs. 35 million to over Rs. 50,000 million and of all types including partnerships and sole proprietorships.

Acuité is increasingly becoming a preferred rating agency for bank loans for the following reasons:

  • Extensive reach across  India with presence in smaller cities and industrial clusters
  • Rating methodology that is transparent and that gives significant weightage to the quality of business and management beyond size and reported financial position
  • Application of objective scoring models to complement the analysts' rating opinions
  • A strong team of analysts spread across India with team leaders having extensive experience in credit ratings
  • Rating Committee  including both internal and external members with significant experience in banking and credit
  • System and process driven work flow that facilitates better turnaround time and responses to client grievances.

Acuité assigns bank loan ratings both on the long and short term scale, depending on the nature and the tenure of the facility. We rate all types of fund and non-fund based facilities provided by the banks. The fund based facilities include cash credit, working capital demand loan (WCDL), packing or pre-shipment credit, post-shipment credit, term loans, external commercial borrowings (ECBs), short term loans among others.

The non-fund based facilities include letter of credit (LC), bank guarantee (BG) and foreign exchange forward contract exposures.

FIXED DEPOSIT RATINGS

Acuité also rates the fixed deposit (FD) programmes of corporates with contracted maturity of more than a year on a 15-point rating scale including modifiers (ACUITÉ FAAA to ACUITÉ D). This is a dedicated rating scale for FDs as per the guidelines of RBI.

The rating methodology for a FD rating will reflect the fundamental credit quality of the issuer and will be largely similar to that for a long term rating.  Further, it will also consider aspects such as the issuer's  FD repayment profile, FD renewal rate, diversity in funding sources and  liquidity position. The FD rating is mapped to the long term rating of the corporate and can be higher than the latter depending on the granularity of the FD programme, the renewal rate and the maturity profile.

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Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.


Sankar Chakraborti
CEO