Fitch launches issuer ratings

Credit rating agency Fitch Ratings today announced the launch of issuer ratings in the country. Fitch has become the first to launch issuer ratings in the country, an essential element for implementing the standardised approach for capital adequacy assessment under Basel II norms.

The issuer ratings would be offered to all entities having an outstanding national long term issue rating, Fitch said. The issuer ratings will apply to any senior long-term debt obligations (having a tenor exceeding one year).

However, the rating scale would be similar to Fitch's national long-term rating scale (from 'AAA(ind)' to 'D(ind)').

This would enable easy benchmarking with existing rated entities. Issuer ratings would be assigned to an entity, while an appropriate issue rating would be assigned depending on the terms of each particular issue.

Fitch is of the opinion that with the Basel II implementation, specifically with regard to capital adequacy, many banks and institutions would focus on getting their portfolio rated by an external agency.

Basel II norms are an improvement over the earlier capital adequacy norms stipulated by the Basel-based Bank for International Settlements.

Fitch believes that issuer ratings would prove to be a valuable tool. An issuer rating would typically incorporate reviews and analyses of an entity's performance and initiatives and publication of periodic updates.

Following this, Fitch would make the published data available to its entire subscriber base, thus enabling an issuer to access global audience.

Apart from this, Fitch also proposes to align the national rating definitions with those used in other geographies. National ratings are designed for use mainly by local investors in domestic markets. The national rating scale provides a relative measure of creditworthiness for rated entities in the country.

The best risk within a country is rated as 'AAA' and other credits are rated only relative to this risk. The changes made are in keeping with Fitch's global definitions.

As the rating categories have been maintained (highest credit quality/ high credit quality/ adequate credit quality etc), these remain consistent with existing practices in India.

The proposed definitions for national long-term credit ratings range between AAA(ind) to D (ind), depending upon the credit risk relative to other domestic issuers.

Similarly, the proposed definitions for national short-term ratings vary across F1 (ind) and D (ind), based on the capacity for timely payment of financial commitments relative to other issuers or issues in the country.