Rating agency Icra has signed a memorandum of understanding with the Saarc-Chamber Construction Industry Council in Sri Lanka to promote the concept of grading of construction and real estate entities in countries belonging to the South Asian Association for Regional Cooperation (Saarc).
The pact aims at providing reliable risk measures to enhance efficiency in the construction and real estate sectors and facilitate the process of credit flow to Saarc countries.
The scope of service covers project contractors, consultants, project owners, real estate developers and the projects themselves.
Icra and Saarc-CIC believe that the pact flags off the institutionalisation of a system that will not only benefit the two sectors, but also set the pace for faster infrastructure development in Saarc region, an Icra release said.
Icra-Saarc-CIC grading of construction and real estate entities will provide employers/sector participants/lenders with an independent and objective opinion on the quality of the entity examined.
Specifically, the project owner can use the grading of contractor/consultant as an input in project tendering process, the release said.
Similarly, for contractors, the gradings are likely to facilitate acceptance and improve the terms of credit.
For the project, the grading assigned is expected to enable independent assessment and benchmarking of deliverables.
Under the proposed grading system, real estate and construction entities will be assessed under two broad risk categories: business risk, and financial risk.
In the case of real estate developers, the assessment criterion will include, sector-specific risks, market position, project composition, management and systems, and track record.
Besides, factors such as profitability, leverage, financial flexibility, and other financial indicators will be examined to assess the financial risk of the developer.
For real estate projects, on the other hand, the risk assessment criterion will include completion risk, price risk, resource risk, political risk, exchange & interest rate risk, and such other factors.
