The rating process usually begins when an issuer/entity contacts PACRA's Business Development and Marketing (BD&M) Department with a request to engage PACRA to provide a rating.
Following the request, a mandate letter is sent to the client within 1-2 working days of the request. Upon signing, the mandate letter becomes a contractual agreement between the entity/issuer to be rated and PACRA to undertake a rating assignment. PACRA signs two separate mandates:
Relationship MandateThe mandate explains all the terms and conditions governing the rating relationship. The mandate is perpetual and valid unless terminated by either party as per the terms of the agreement. Fee Mandate The Fee mandate explains the fee charged for the rating, the period covered under the fee, the annual increase clause, and other charges that may be applicable.
The rating assignment is allocated to one of PACRA's rating team. The Unit Head takes the responsibility of supervising the rating assignment and designate it to a rating team.
PACRA has a designated Client on Boarding (CoB) function within the Business Development & Marketing. The role of this function is to liaise with the client and collect all information required for initiating the rating process. A Preliminary study is conducted with a careful review of an entity's published information and CoB shares a detailed questionnaire with the Entity/issuer after discussing the information requirements with the rating team. Once information is collected and completeness is ensured, COB transfers the information to the rating team.
PACRA conducts a detailed discussion with the entity/issuer's management team to understand the business. The objective of which is to develop a better understanding of the organizational structure and quality of the process, and conduct the interview of key department heads and establish a sense of control environment prevailing in the entity. A detailed itinerary in advance is sent for the said visit. This can be done through face-to-face meetings, site visit and video/teleconference, as considered appropriate
The rating team performs a detailed analysis in line with the sector-specific rating criteria and methodologies. The analysis includes
- Assess the Key rating Drivers according to applicable sector criteria
- Apply rating model
- Quantitative and qualitative analysis performed in line with criteria
- The qualitative analysis includes the assessment of the Ownership, Governance, Management and Systems of the entity/issuer.
- Entity/Issues placement within the relative rating universe after in-depth Sector Analysis
- Develop sector study, where the sector is new
The purpose of the Management Meeting is to assimilate the strategic view of the entity's top management. The meeting is wide-ranging, covering the entity's ownership, governance, financial position, future prospects, the economic environment, and many other issues that can have a bearing on the rating. The participants of the meeting include the respective rating team, Unit Head, and members of the apex rating committee from PACRA and the senior management of the client, including the Chief Executive Officer. Before heading for the management meeting, a formal agenda is sent, highlighting the areas where we expect to have the views and opinions of the entity's top management. We expect to have a formal presentation for this meeting covering, at a minimum, those areas highlighted in the agenda.
Subsequent to the management meeting, a draft detailed rating report is sent to the entity's management for their feedback on completeness and accuracy of the information contained in the report. If the report contains anything confidential, the client is also expected to communicate the same. The feedback is expected from the entity within five working days.
A multi-layered, decision-making process is followed in assigning a rating. In finalizing the rating, the relevant team prepares a rating proposal based on the information gathered through the questionnaire and discussion at the Management Meeting and head office/site visit. This is presented to the rating committee, comprising at least one apex, two permanent members, and the rating team. The RC is usually conducted within one week following the management meeting.
After the Rating Committee, PACRA provides rated entities with a draft press release and a one-page summary report in advance for pre-publication review. This is to avoid issuing any credit analyses that contain misrepresentations or are otherwise misleading as to the general creditworthiness of an entity/issuer.
In case the entity disagrees with any of PACRA rating opinion – initial or surveillance – it has the option to appeal for review of rating opinion within five (5) working days of the intimation of the rating action. The appeal process is covered by PACRA's publicly available "Rating Review Appeal Policy". Any disagreement with rating opinion does not restrict PACRA's right to disseminate its updated opinion on the public rating. Once reviewed, the rating opinion is final. If no written appeal for rating review is submitted within the stipulated time, the rating is considered accepted by the entity's management.
Once the rating has been finalized, it is formally notified to the entity/issuer. The rating notification is usually accompanied by a final set of the rating report and press release.
In an initial rating assignment, the entity's management has the prerogative to make this rating public or keep it private. The management is expected to make this decision within five days of notification. In case the entity decides to go for public dissemination. PACRA does so through its website, other electronic media, and two newspapers. It provides all the benefits of a publicly available independent rating opinion of the entity. In case of private rating (i.e., rating not made public), selective disclosure is not be allowed.
Once the initial rating of an entity is done and publicly disseminated, over the life of the rating mandate, PACRA is duty-bound to inform the public of any change in the rating opinion and reserves the right to take such action without prior notice if so warranted by circumstances. PACRA attempts to achieve public dissemination of any updating opinion within two days of its notification. In the case of public rating, PACRA, in addition to the respective press release, disseminates the summary report through its website.
Through experience, we see a timeline spanning six-to-eight weeks to complete a rating assignment. However, the cooperation of the entity's management with PACRA in terms of expediting the response to our questionnaire and other requests for information (via timely and quality information), whenever deemed necessary and sought during the rating process, aids significantly in facilitating the completion of the rating process within the planned duration.
Ratings once notified, remain under surveillance at all times. It is an on-going and continuous process in line with best practices. Under the mandate, ratings are kept under constant surveillance from the date of notification.
The Rating relationship terminates in several cases.
- The entity gives 60 days advance notice within the term of the mandate to terminate the relationship
- The Instrument rating, in normal circumstances, is withdrawn only when the rated instrument is redeemed. However, in the extreme scenario of the non-availability of requisite information, PACRA may withdraw instrument rating. The entity rating is withdrawn either on the client's decision to withdraw or in extreme cases owing to reluctance by the client to provide the required information. PACRA may suspend rating where circumstances prevent the formation of rating opinion. In such cases, PACRA makes all efforts to revive the rating at the earliest. The fact that the rating is currently withdrawn/suspended, along with the reason/s, is disseminated publicly.