Faqs

Credit Rating provides an independent opinion on credit risks involved in an issuer with reference to the capability of issuer to repay the debt as per terms of the issue. The opinion is represented by easy to understand symbolic indicators. The opinion is neither a general-purpose evaluation of the issuer nor a recommendation to buy, hold or sell a debt instrument.

Credit ratings provide an investor with critical information to enable him to take an informed investment decision based on own risk-return preferences. Credit ratings also assist investors to select an appropriate investment instrument from a large range of options available.

Credit rating is an in-depth analysis and assessment of strengths and weaknesses of an entity’s fundamentals including financials along with industry inherent factors, marketing strategies, competitive edge, level of technological development, operational efficiency, competence and effectiveness of management, hedging of risks, cash flow, liquidity, financial flexibility, government policies, history of debt servicing, and sensitivity to possible changes in business/economic circumstances.

No, Beacon Ratings does not conduct an audit of a rated entity. Beacon Ratings’ ratings are based on the audited/unaudited financials and other information / documents provided by the rated entity and the information available in the public domain for assigning a rating.

Once the rating is accepted, it would be under surveillance over the tenure of the instrument, and in case of entity rating, ratings remain under surveillance until withdrawn. During the surveillance period, all changes affecting the entity are taken into account and the rating, if necessary, is changed, upwards or downwards.

Credit Ratings maintains absolute independence from market participants to provide unbiased opinions. The ratings are a result of collective judgment of rating committee members relying on an in-house research and analysis of data collected from the entity and third-party sources and objectively benchmarked.

(a) Credit ratings are neither recommendation to buy or sell or hold a specified rated security nor are guarantees or protections against default.

(b) Specific credit rating opinions are not intended to measure many of the other factors that fixed - income investors must consider in relation to risk - such as liquidity risk, pre-payment risk, interest rate risk, risk of secondary market loss, or exchange loss risk.

(c) The rating is specific to the instrument and is not the rating of the issuer.

Rating is denoted by a simple alpha-numeric symbol, for e.g. AAA, AA, A, BBB, BB, B, CCC, CC, C, D. For a complete list of ratings symbols and interpretations, refer to Beacon Ratings website www.beaconratings.com

Each rating symbol is an alpha-numeric representation, for example of debt instrument, degree of repayment risk associated with debt instruments. For a complete list of rating symbol interpretation, refer to www.beaconratings.com

No. Rating symbols may vary depending on the type of debt instrument and the tenure i.e. long term or short term. For a complete list of rating scale symbols and interpretations, refer to www.beaconratings.com

An investment grade rating signifies the rated entity or financial instrument is likely to meet its payment obligations. For Beacon Ratings, entities or financial instruments rated BBB and above are classified as investment grade ratings. Entities or financial instruments rated BB and below are classified as speculative grade ratings, implying capacity to meet the payment obligations cannot be supported, considered to be carrying higher risk and a higher probability of default compared to entities or financial instruments classified as investment grade.

To protect the interest of investors, SEC has mandated Beacon Ratings to continuously monitor and carry out periodic reviews of all published ratings during the lifetime of such rated instruments.

Rating is an independent opinion on information available at a point in time and expected projections. However, information and expectations can change significantly over time, thereby affecting the future repayment abilities and thus, requiring the rating to be altered.

Rating is monitored throughout the life of a rated entity or financial instrument, unless withdrawn. A downgrade in the rating during the life of the entity or financial instrument indicates that the risk of default is higher, and an upgrade in the rating indicates that the risk of default is lower, than what was earlier determined.

The entity or issuer who wants to get rated pays rating service fees to Beacon Ratings.

Although the entity or issuer pays for the rating, the investor uses it. Like any other product or service, the 'value' of the rating depends entirely on how the investor perceive the ratings. Investor perception is based on the credibility of the rating agency. In addition, credit rating agencies are also expected to follow SEC’s approved code of ethics, business conduct, rating process, rating policies, and criteria which are available on Beacon Ratings’ website: www.beaconratings.com

Credit rating is an exhaustive exercise which typically takes about 3-4 weeks to complete from the date of receipt of the adequate information to carry out the process.

Investors: Credit rating provides relative ranking of the default loss probability for a given fixed income investment in comparison with other rated instruments. Rating provides investors with an independent and professional judgment of the credit quality of the instrument, which investors would not otherwise be able to evaluate. Other benefits to investors come from industry reports, company reports, investor information and protection and other on-line assistance provided by the rating agencies.

Issuers: Investors use ratings as tool for investment decisions on financial instruments. Credit rating provides a basis for determining the returns compared to the risks involved or perceived. This could be a useful benchmark for issue pricing and result in savings in costs.

Intermediaries such as investment banks and other market players use the rating for pricing, in placement and marketing the issues. The ratings are used in case of asset securitisation and structured obligation. The rating makes the exposure levels and risk undertaking decisions easy.

Regulators have set benchmarks and rules for various market intermediaries or financial intuitions, etc. based on the rating for investment, exposure and dealings.