ARC Ratings- a new Global Credit Rating Agency, launched

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Five rating agencies from around the world have joined hands to launch a new Global Credit Rating Agency, ARC Ratings, which is being promoted as the alternative to the present "Big Three" agencies- Fitch (Headquarters in London and US), Moody's (US) and Standard & Poor's (US) - dominating about 90% of global market.

  • It will be a Joint venture (20% each) between CARE Rating of India; SR Rating, Brazil; GCR ,South Africa; MARC of Malaysia and Portugal's CPR
  • Proposed Headquarter : London (registered with European Securities and Markets Authority)
    CEO : Jose Pocas Esteves
    chief ratings officer : Uwe Bott

Universal Credit Rating Group (UCRG) : Earlier in June 2013, three rating agencies from US (Egan-Jones Ratings Co), China (Dagong Global Credit Rating Co. Ltd) and Russia (RusRating JSC) came together with the similar purpose to create a global rating agency which will challenge the monopoly of these three agencies and thus would bring a sort of reform in the system.

  • the joint venture (equal shares of all three), Universal Credit Rating Group, would be based in Hongkong with Guan Jianzhong as its chairman and Richard Hainsworth as CEO.
  • It aims to create a "Dual rating system" by 2020 in which apart from the current system, a new international credit rating system having varied geographical perspective would be available to all the countries of the world by 2025.
  • In this system Universal and the local agency would each issue their own rating so investors can "see there is a difference of view and then the investors can make their own mind up,".

Why the need

  • The Big Three's complete dominance has created a sort of oligopoly
  • They are no longer seen to meet the needs of new economic world order (multi-polar world economy)
  • They were percieved to be having monostandard (U.S. centric) view for all and any business environment/ economy
  • Their failures during 2008 US subprime crisis (gave high ratings to complex securities which led to the crisis) and euro zone's crisis.

Why Credit Rating is required

An important part of the financial system, Rating grades issued by these agencies are used by the investors as an indicator of the creditworthiness of the company (Corporate Rating) or the Country (Sovereign Ratings). i.e. how well is that company or Country is positioned to return its debt

  • an investor buys these debt instruments based on these ratings as they tell them the likely chances of getting these investment back and with profit

Credit Rating Agencies registered in India
1. CRISIL - Credit Rating Information Services of India Limited

  • established in 1987 it is the largest agency in India (market share of >60%)
  • Standard & Poor's has majority stake

2. ICRA (est. 1991) - Investment Information and Credit Rating Agency of India

  • Moodys, is the largest shareholder

3. CARE (est. 1993)- Credit Analysis & Research Ltd.

  • promoted by IDBI, Canara Bank , UTI and others

4. FITCH (now India Ratings and Research)
5. SMERA (Small and Medium Enterprises Rating Agency) : an initiative of SIDBI it is meant exclusively for rating of SMEs
6. Brickwork Ratings India Private Limited

  • SEBI regulates credit rating agencies in India
  • Debt securities : issued by companies to raise funds for a variety of purposes such as business expansion

Ratings in India
AAA - : Highest Safety (highest-quality bonds that face the lowest risk of default)
AA - : High Safety
A - : Adequate Safety
BBB - : Moderate Safety
BB - : Sub -moderate Safety
B - : Inadequate Safety
C - : Substantial Risk
D - : Default

  • the assigned rating is communicated to the issuer for acceptance. In cases where the issuer does not find the rating acceptable, it can appeal for a review.
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