'Corporate credit rating raised by 300 percent'
KARACHI (February 25 2005): The corporate credit rating has increased by 300 percent and about 12 corporate companies are in the process of being rated this year as compared to only four ratings issued last year. This was stated by Securities and Exchange Commission of Pakistan (SECP) Commissioner Etrat H. Rizvi, while addressing a seminar on "Latest development in credit rating" organised by the Management Association of Pakistan (MAP) here on Thursday. He said that the code of corporate governance issued three years ago had greatly encouraged the corporate credit rating.
Pacra issued 87 credit ratings, while JCR-VIS issued 113 credit ratings. Pakistan is still lagging behind in this field. The cheaper direct borrowing due to low interest rates by banks had reduced the process of credit rating of term finance certificates (TFCs), which has harmed the capital market.
He said that since majority of shares in many companies were held by the owners they were reluctant to make the ratings public. The SECP and State Bank had realised the role of credit ratings in mobilisation of funds and the former was considering making the credit rating mandatory in certain sectors.
Etrat said that the SECP had issued code of conduct for practices carried out by the credit rating agencies. The code emphasised on the quality and integrity of rating procedures, independent, transparent and timely disclosures. The code also laid down rights and responsibilities of the credit rating companies and their clients.
The CRCs would be required to maintain the ratings' press release on their website for at least three years.
The code has restricted CRCs to keep the sensitive information regarding pricing, etc, of its clients confidential and their employees would not use the confidential information of their clients to their advantage.
The SECP commissioner called on the CRCs to expand their activities to other sectors such as education and NGOs, which numbered about 12,000 and accepted donations from many sources. He said that the credit rating should also cover government departments, including municipal corporations and city governments, which were planning to issue municipal bonds for fund raising.
Etrat said that the State Bank had raised the minimum paid-up capital from Rs 500 million to Rs 2 billion this year. Similarly, the paid-up capital for insurance companies have also been enhanced.
About Non-Banking Finance Corporation (NBFC), he said that instead of the paid-up capital their equity requirement was taken into account, while determining their health.
Addressing the seminar JCR-VIS President Fahim Ahmad said that an Asian Credit Rating Agencies Association (ACRAA) has been formed to stop the onslaught of global rating agencies in this part of the world.
He said that a move had also been initiated for establishing an Islamic Credit Rating Agency, but progress on the subject was very slow.
He said that his CRC had initiated credit rating of mutual funds, real estate developers, educational institutions and NGOs.
Copyright Business Recorder, 2005