F.A.Q.

Questions and Answers

What is a credit rating?

A credit rating is a significant and indispensable financial market instrument which makes borrower-investor relations as transparent and effective as possible.

A credit rating based on the National Credit Rating Scale is a rating agency`s current opinion on the creditworthiness of a certain Ukrainian borrower on the whole (issuer`s rating) or as regards to a certain debt instrument (issue`s rating). A credit rating is a universal tool for assessing the reliability of a borrower`s debt liabilities and assessing the associated credit risk.

A credit rating is the assessment of a borrower`s financial position offering a different assessment technique for each contractor type enterprise, bank, town council, insurance company, etc.

A rating report enables a potential investor to offer the most favourable terms of cooperation. Moreover the very fact of a borrower`s cooperation with a rating agency is often viewed as another favourable factor by the investor.  

An expert opinion on the company`s financial position and performance efficiency are confidential and are not disclosed without the client`s consent. Depending on the complexity of the rating procedure the rating assignment might take up to 30 to 90 days.

What is the significance of a credit rating?

Rating forms an integral attribute to any highly developed economy which is hardly possible without transparency. In the first place a rating is required by a company willing to confirm its credibility and financial stability. The need for it is most evident in the following cases:

• Plans to issue corporate bonds a bond rating serves buyers as a prompt guide to the quality of the bonds and promotes a successful offering;
• Attraction of foreign investments a company`s rating history creates a favourable financial reputation which is of critical importance to a foreign investor managing long-term projects; 
• Intention to make a contract with foreign suppliers due to a credit rating, foreign partners might offer more favourable settlement terms, for instance waive the letter of credit and provide for payment deferment.  

Could a credit rating be considered a National Standard compliance certificate?

No, the mere fact of a rating assignment cannot be deemed a positive evaluation by the rating agency. Credit rating is a method of information disclosure and could indicate both high and extremely low creditworthiness of the issuer. This is why the regulation includes an important criterion whether ratings belong to investment (safer investments) or speculative (riskier investments) scale categories. The investment category ratings could be generally viewed as positive evaluation whereas the speculative category ratings alarm a potential investor.

A uaCC rating according to the Ukrainian National Scale for instance indicates a high probability of default on financial obligations. Still there are companies which take advantage of rating illiteracy and publicize even such a low rating as a legitimate confirmation of the safety of investing in their bonds.

Does a credit rating suggest buying or selling securities or guarantee the recovery of funds invested?

It is strictly up to an investor to buy or sell any securities. There are investors who due to their convictions or their regulator`s requirements will buy securities of the most credible issuers only. Other category of investors pursues a policy of more risky trading (and as a rule more profitable) instruments. The mission of a rating company is to assist all investor categories in making their own decisions. For this purpose a rating agency structures the market by risk grades sifting a great number of national issuers for those whose activity deserves a closer analysis by a potential investor. 

How does a borrower benefit from a rating? What is his advantage in case of a credit rating failing to meet his expectations?   

Rating is an opportunity to advise potential investors and partners of one`s creditworthiness without disclosing any confidential information. The higher the credit rating level is, the greater the chances to raise funds at a lower rate.

A credit rating assignment provides not only momentary advantages this is a decision affecting long-term prospects. In the context of an evolving market culture of information use it is the fact of a company`s credit rating or its absence that matters. As the financial market develops investors` attention will shift towards the assigned rating level. In the future those Ukrainian companies which have the longest rating history will gain an advantage  

The companies that come to understand the significance of a rating should not be afraid of a possible low grade. The very fact of the will towards transparency is favourably viewed by investors including foreign ones. The agency regularly monitors the borrowers` position, and any positive changes cause the rating to upgraded. In addition a rating report contains the company`s complete rating history, so the changes thereof provide the best evidence of the company`s progress.

The rating is published at the borrower`s request. The company may agree to the rating publication later when certain positive changes in the performance result in a rating upgrade.

How does an investor benefit from a rating?

Credit rating is currently the most trustworthy source of information regarding the creditworthiness of a potential partner; moreover an investor is fully entitled to require this sort of information from a borrower. In addition a report provides the objective information on the risks of capital investment.

What does a credit rating outlook (stable, positive, negative, developing) indicate?

An outlook provides comments on possible changes in a credit rating in the course of the year. When assigning a credit rating the usual practice is to establish a stable outlook indicating the lack of preconditions for a rating change. In case of changes in the company in the course of development or due to force majeure events, the agency changes the outlook and possibly the rating as well. In the case of positive outlook a regular evolutionary rating upgrade provides as a rule for one grade rise (from usBBB+ to uaA- for instance), less frequently a 2-3 grade upgrade.   

However an outlook is but a tendency, it is the change of a rating that is really important. Any changes either in the rating or the outlook signal the investor about the changes in the company both positive and negative.

Why does a credit rating not always correlate with the market estimated value of the securities?  

Even when the securities have growing market quotations, their credit rating might remain unchanged (and may not even be too high). This is accounted for by a specific perspective the rating agency assumes a basically different period of assessment.

Market quotations are unstable (they may rise today and fall tomorrow) and are susceptible to current events in the issuer`s life. A credit rating is meant to be unchangeable (i.e. not volatile), thereby smoothing out market fluctuations. It cannot be upgraded based on short-term market statistics only to be downgraded a little later as a result of another change in the market situation. Rating agency assesses events within the limits of a very vast horizon period measured in years. This is due to investors expecting rating agencies to produce predictable assessments and evolutionary changing ratings based on events that affect the rating holder on a fundamental level not just a temporary one.

What are the advantages of Credit-Rating agency? What is the agency`s experience in the Ukrainian rating market?

Credit-Rating agency was founded in 2001. Services relating to credit rating assignment constitute its exclusive statutory activity. The agency employs special methods of risk assessment and the Ukrainian National Credit Rating Scale based on many years of experience in assigning international and national ratings in highly developed economies.

Since 2003 the agency`s assessments have been officially recognized by the Ministry of Finance, and since 2004 the agency has been acting as authorized representative of the State Securities and Stock Market Commission to assign credit ratings to businesses, industries and regions. The agency has to date assigned over 600 ratings to all types of counterparties operating in the Ukrainian economy (companies of all industries, banks, insurance organizations, cities).

To promote the transparency of the Ukrainian economy Credit-Rating agency made it a rule to grant free access to information on rating changes for all players in the financial market of Ukraine. The information regarding the rating assignment can be seen in the section Ratings by the Agency, where it is reviewed on a daily basis, in the informational resources of Reuters,  BLOOMBERG and CBonds,  and also submitted to all the national information agencies.  

Send your questions to: MProtsenko@credit-rating.com.ua  or news@credit-rating.com.ua
Information and Analytic Department , Marina Protsenko , tel .: (044) 490-25-50