Understanding Ratings
It is almost impossible to imagine today's financial market without ratings. There are several whys of it, both fundamental and those concerned with the requirements of global financial risks regulatory practices. Herewith, they are interrelated because the second is actually a derivative of the first, and vice versa. Let`s consider why it is so.
Financial market is such a system of relations in which there always will be financial intermediaries, and they will always determine the scenario of this market development. In its turn, high performance of tools, which are used by financial intermediaries system, is the basis for economic growth and development. One of such tools is ratings assignment. Nowadays, all countries with market development model have one common trait: financial market participants have considerable amount of assets at their disposal. Accordingly, the problem of quality determining of the assets occurs. Exactly this function is taken upon oneself by the Agency while deciding on rating assignment.
However, assessment of assets quality is not the prime cause. The need for it arises from the presence of risk factor. Freedom of choice in market economy must be underpinned by confidence in partner`s reliability. It is not enough of internal evaluations for decision-making and the situation often requires estimates of independent experts. Therefore, in global financial risk regulation practice rating system was developed. Hitherto it has been used successfully by financial market participants.
It is also worth noting that in the system of relations between financial market participants there is no alternative institution that could most effectively be engaged independently in risks identification, except for rating agencies. It must be emphasized that the question is primarily referred to identification rather than to elimination, because the latter function is taken over by other institutions (insurance companies, export credit agencies, etc.). Ignoring the needs of rating services market development will lead to delays in development and regulation of banking sector, trade finance system, insurance and stock markets. Therefore, there is no need to invent something new when the entire world community develops its markets in the wake of the ratings system.
Using rating services is very convenient. Rating indicators in compact and capacious form characterize status and future trends of the borrower`s creditworthiness or the investment attractiveness of a specific project. Thus, they act a part of indicators for decision-making, establishment and maintenance of business relationships.
Current rating level and dynamics of its changes serve as signals for conservation, enhancement or suspense of cooperation. Thus, while rating assigning, the Agency at the same time creates a portrait of the subject of rating written by an independent and objective observer.
At the same time, different types of ratings have different applications. Nowadays, two kinds of them are the most common in the world: credit rating and investment attractiveness rating.
Credit rating is a measure of a company`s creditworthiness, which is calculated on the basis of its financial condition, assets and capital availability, as well as exposure to risks.
Credit rating expresses th Agency`s opinion about the ability and willingness of the lender (the issuer) to meet its financial obligations in full and on time.
Credit rating can also identify the quality of credit instrument, for example, a company's bonds or other debt instruments. In general, the presence of the credit rating provides a number of advantages for a company, among which are the following:
- obtaining bank credit and other borrowed funds
- obtaining trade credit with payment delay
- other ways of capital raising
- insurance of nonpayment risk and other types of insurance
- correcting own activities concerning borrower
- establishment and retention of business relations
- search of new partners abroad and/or in Ukraine
- check of counterparty with the aim to establish/expand cooperation
- improving of company's financial reputation as a reliable borrower
- effective PR tool at the international level and in Ukraine
Rating of investment attractiveness of a project/company represents assessment of satisfaction level of financial, industrial, organizational, marketing, legal and other requirements or interests of an investor with respect to a particular business project or enterprise.
This kind of rating enables to evaluate advantages and disadvantages of a particular investment project as well as opportuneness of investment climate in a particular region or industry. Similar to credit rating, application of investment attractiveness rating of a project/company also goes far beyond its name. Its presence gives several advantages:
- funds attracting for investment project
- loan receiving
- other types of investments attraction
- correcting own activities concerning a subject of investing
- establishment and retention of business relations
- search of new investment subjects abroad and/or in Ukraine
- c invest attractiveness heck of companies and projects in Ukraine
- improving company's reputation as a generator of profitable and fast-payback investment projects
- effective PR tool at the international level and in Ukraine
Thus, credit rating, as well as investment attractiveness rating assigned by the Agency have a wide range of applications and represent a composite indicator designed to reflect the quality of a company`s or project`s managers work on the basis of the most complete information.
The Agency offers the following range of information products reflecting above mentioned ratings which are aimed at concrete results achievement for any business development:
- Status Credit Report
- Status Credit Rating Report
- Investment Attractiveness Report