Bank Loan Ratings
Companies/ borrowers avail different types of loan facilities from banks to meet their funds requirements. The same can be in the form of Funded (where actual cash is disbursed by the bank) or Non-funded (where cash disbursement is not done till devolvement of these credits). The bank loans are availed to meet short term fund requirements (working capital loans, overdrafts, revolving cash credit, Import credit, Export credit etc.) and also long term loans for project funding. The non-funded loans are generally in the form of guarantees or documentary credits.
CARE Ratings Nepal Limited’s (CRNL) Bank Loan Rating (BLR) is facility specific assessment of credit risk. The primary focus of the rating exercise is to assess future cash generation capability and their adequacy to meet debt obligations as per the repayment terms. The analysis therefore attempts to determine the fundamentals of the business and the industry and the probabilities of change in these fundamentals, which could affect the creditworthiness of the borrower. Once accepted, the rating is subject to annual surveillance.
The primary focus of the rating exercise is to assess future cash generation capability and the adequacy to meet debt obligations in adverse conditions. The analysis therefore attempts to determine the fundamentals and the probabilities of change in these fundamentals, which could affect the creditworthiness of the issuer. Debt rating can be done for Bonds, Debentures, Commercial Papers, Certificate of Deposits, Subordinated Debt, Fixed Deposits, Bank loan ratings and other such debt obligations.
Issuer Rating is an issuer-specific assessment of the credit risk. It is similar to long-term instrument ratings except for the fact that they are specific to an issuer and not specific to any of the issuer’s instruments. Issuer Rating factors in the expected performance of the entity over an intermediate time horizon of around three years and reflects the capability of the entity as regards to servicing of its financial obligations. Issuer Rating would help lenders/investors to evaluate credit quality of the issuer and would facilitate an informed lending/investment decision.
CRNL has a comprehensive methodology for Claims Paying Ability rating (CPA) / Financial Strength Rating rating (FSR) for insurance companies. The rating process involves analysis of qualitative factors like an insurer’s business fundamentals, its competitive position, its management, ownership structure, insurance regulations, underwriting and investment strategies. Quantitative factors involve analysis of the company’s risks underwritten, asset quality, profitability, liquidity, solvency and asset liability management method.
CRNL’s IPO grading is a service aimed at facilitating the assessment of equity issues offered to public. CRNL’s IPO grading is an independent and professional opinion on the fundamentals of the issuer. The grade assigned to any individual issue (IPO, FPO, Rights Issue, Bonus Share) represents a relative assessment of the ‘fundamentals’ of that issuer. CRNL’s IPO grading would involve an in-depth assessment of the various quantitative and qualitative parameters of the issuer. Quantitative parameters include growth prospects of the industry, financial strength & operating performance of the issuer whereas, qualitative parameters primarily include management capability, promoters’ evaluation, accounting policies and corporate governance practices.
SME Ratings indicate the relative level of creditworthiness of an SME entity, adjudged in relation to other SMEs. It is an issuer specific rating reflecting overall general creditworthiness. It is a onetime assessment of credit risk. The rating exercise would take into account the industry dynamics, operational performance, financial risk characteristics, management capability and the future prospects of the entity for arriving at the overall risk profile of the SME unit.