What is Credit Rating ?

A credit rating is an independent, unbiased and objective opinion on future debt repayment ability and willingness of a borrower with respect to a debt instrument. In other words, a credit rating is a measure of risk of default in making timely repayment of principal and interest by a borrower for a particular debt instrument.

What is the validity period of credit rating?

Once the rating is accepted, it would be under surveillance over the tenure of the instrument. The rating is kept updated as required, through the surveillance process. The updated rating is available on the website.

How does the credit rating help the investor?

A credit rating provides the investor with an independent and unbiased opinion and understanding of the credit risk in a particular debt instrument or a bank loan. Understanding credit risk is important for the investor to take an informed decision before investment/lending and to determine the ‘pricing’ of such instruments. A credit rating helps eliminate information asymmetry thus helping market forces function more efficiently.

What is the varous fees payable for the rating exercise?

Infomerics Nepal, upon receiving a request to rate an issue, charges Initial Rating Fee for carrying out the rating exercise for the first time. In subsequent years Infomerics Nepal charges Annual Surveillance Fee. The Initial Rating Fee and the Annual Surveillance Fee amount is linked to the quantum of the debt instrument/Bank Loan and shall be as per credit rating regulation 2011, issued by SEBON.

Who pays the creadit rating agency?

The fee is paid by the issuer/ borrower.

Is it mandatory to sing the agreement?

Yes, it is mandatory to sign the agreement.

Wow does infomerics Nepal ensure that the rating is not biased, or rating are not influenced?

Infomerics Nepal manages the actual /potential conflicts of interests in line with the SEBON regulations / guidelines and the Code of Conduct. The above guidelines are aimed to ensure that the analytical team is able to arrive at a rating opinion without being influenced by the fee. The measures adopted by Infomerics Nepal in this regard, inter alia, include

  • The compensation of the members of analytical team at Infomerics Nepal is not linked to the rating fee or the rating assigned.
  • The analytical team is firewalled and, therefore, does not have access to fee details of clients nor do they engage in fee negotiations with the client.
  • No one outside the analytical team has access to the rating assigned to an entity unless it is made public.
  • Infomerics Nepal does not provide any advance indication about the rating to a client, before all information is received and analyzed, and the rating is assigned by the Rating Committee.
  • Infomerics Nepal employees are prohibited to trade in stocks/bonds/debentures of companies rated by Infomerics Nepal. Strict disclosures of investment holdings and prior approval of sell/purchase of stocks/bonds/debentures is in place.
  • Employees of Infomerics Nepal are strictly prohibited from accepting any gift, favor (in cash or kind).
  • Rating is assigned by a rating committee after necessary deliberations on the basis of voting and majority opinion, and only then the Rating is assigned. The Rating is not assigned by any individual.
  • Admin and other employees outside the analytical team don’t have access to the Rating Committees.
  • The core analytical activities are conducted within Infomerics Nepal and not outsourced.
  • The rating process cannot be conducted arbitrarily and the rating process follows rating criteria / methodology. All rating criteria / methodology are publicly available on Infomerics Nepal website.
  • The Rating assigned and the rationale behind the rating are also made public through the rating releases on the website.
Is a credit rating recommendation to buy, hold or sell a rated debt instruments?

No, a credit rating is neither a recommendation to buy, sell or hold a rated debt instrument nor a recommendation to sanction, disburse or recall bank loans.

Does infomerics Nepal conduct an audit of the rated entity?

No, Infomerics Nepal does not conduct any audit of a rated entity. Infomerics Nepal ratings are based on the audited/unaudited financials and other information / documents provided by the rated entity to Infomerics Nepal and the information available in the public domain for assigning a rating.

Is rating a one-time exercise?

No, a rating of a debt instrument is not a one-time exercise. Once an assigned rating is accepted by the client the Rating is kept under surveillance for the lifetime of the debt instrument.

What kind of information is required for condating a rating assignment?

The following information, inter alia, is required for a rating:

    • Annual Reports for the last three to five years

    • Financial projections for the next two to three years with relevant assumptions and Year to Date financials of the current financial year

    • Details of the Bank Facilities to be rated along with photocopies of all sanction letters

    • Timely Debt Repayment Letter (in the prescribed format) and details of any past default / delay in meeting the debt obligations

    • Top customers’/suppliers details

Besides the above mentioned documents, the Organization also has to furnish to Infomerics Nepal any other relevant additional information (including, but not limited to, access to operating systems, facilities and key management personnel) as may be considered necessary by Infomerics Nepal for carrying out the rating assignment.

The Organization shall also require to promptly inform Infomerics Nepal, in writing of any other developments such as all corporate actions including but not limited to sell-off, acquisitions and mergers, restructuring or any proposal for re-schedule or postponement of the repayment programs of the Organization’s dues / debts with any lender(s) / investor(s).

How can an investors get access to Infomerics Nepal Rating or know if Infomerics Nepal have changed its rating?

Infomerics Nepal discloses all its rating and its rating actions through its rating releases on its website www.infomericsnepal.com

How is a rating kept updated? Why do ratings change?

Infomerics Nepal conduct surveillance and reviews for all accepted Infomerics Nepal ratings of bonds/debentures/ bank facilities etc. that are outstanding. This process involves tracking of developments in the business environment of the rated entities and an analysis of the audited annual and unaudited quarterly/half yearly results. The above factors are considered through a process of rating review based on which a rating committee affirms the existing rating or if warranted, upgrades or downgrades the rating, as the case may be.

Rating is assigned based on the information available at a point in time, with expectations made on the basis of such information by the agency. However, circumstances can change significantly over time causing the entity’s performance to deviate from the earlier expectations, thereby affecting the debt servicing capability of the entity and thus, requiring the rating to be changed.

What is Rating watch?

A Rating Watch indicates that a particular rating may undergo a revision in the near term and the likely direction of such revision is also indicated. A "Positive” Rating Watch indicates a possibility of an upgrade, a "Negative" Rating Watch, indicates a possibility of a downgrade. However, a Rating Watch does not necessarily mean a rating revision will take place.

What are investment grade and Speculative grade?

Debt Instruments rated 'BBB-' and above are generally called investment grade. Instruments that are rated ‘BB+ ‘and below are known as speculative grade. Instruments rated in the speculative grade are considered to carry materially higher risk and a higher probability of default compared to instruments rated in the investment grade.

Who regulates rating agencies?

In Nepal, Credit Ratings Agencies are registered with the Securities and Exchange Board of Nepal (SEBON).

Can a rating agency charge a higher fee for providing a better rating?

In Infomerics Nepal there are strict firewalls between the Business Development Team which finalizes the fee and the Rating Operations Team which assigns the rating. In Infomerics Nepal, a rating is never linked to the fee charged to a client.

What Rating Withdrawal?

When a debt instrument is fully repaid on schedule or before schedule, the rating will be withdrawn after following the laid down process.

How much time does it take to complete a rating assignment?

Once all the information as per the requirement is received, the rating process is completed by Infomerics Nepal in about 3-4 weeks.

What happens if the issuer does not cooperate with the rating agencies for sharing information?

This will be a violation of the rating agreement between the rating agency and the issuer, and the existing SEBON regulations. Such ratings will be carried out based on publicly available information on a best effort basis and such fact would be disclosed in the rationale which is uploaded in the website. The ratings may also be placed on watch or put under notice for withdrawal. If such non-cooperation continues for six months, the ratings may be withdrawn.

What is Default?

To understand the recognition of Default by Infomerics Nepal go to Policies-> Default Recognition Policy or copy this link: https://infomericsnepal.com/images/blog/1657540021.pdf

What is are rating symbols and their implication?

Infomerics Nepal uses the following rating symbols for long term and short term ratings:

A. Long Term Ratings

Modifiers {“+” (plus)/ “- “(Minus)} can be used with the rating symbols for the categories IRN AA to IRN C, which reflects the comparative standing within the category.

B. Short Term Ratings

Modifiers {“+” (plus)} can be used with the rating symbols for the categories IRN A1 to IRN A4, which reflects the comparative standing within the category.