CariCRIS makes ratings play

Move over Moody’s and say farewell Fitch, because there is a new credit agency in town. Caribbean Information and Credit Rating Services Limited or CariCRIS, has done its homework and  promises to relieve the burden of local investors. The agency was formally launched last week at the Trinidad Hilton, in the presence of key persons such as Central Bank Governor, Ewart Williams, Director of CariCRIS, Ram Ramesh, Brian Wynter and Executive Director of Financial Services Commission in Jamaica. Central Bank Governor, Ewart Williams praised CariCRIS for its initiative, saying that “The advent of our regional credit rating agency could serve to further enhance the efficiency of resource allocation, improve transparency and provide a boost to the capital market.” Williams noted that credit rating agencies were “one of a range of information vendors.” The Central Bank governor said there are integral problems financial institutions must overcome, including  information on savers and investors on real assets.

Commercial banks must be able to bridge this information gap, as they are able to protect deposits by assessing the creditworthiness of these to whom they lend. As financial markets do not enjoy such protection, they rely on institutions such as credit rating agencies to provide information on issuers of various forms of debt to the benefit of investors and issuers. While Williams admitted that global rating agencies perform virtually the same function as CariCRIS, there are certain benefits CariCRIS may bring to the region, as it impacts on regional capital markets. For the first time, investors would be able to objectively compare credit in making investment decisions, and there will be greater impetus for integration of regional capital markets by facilitating more informed cross-border investment. In addition, regional companies which normally depend on traditional sources of financing will be able to raise capital directly from the market at lower costs, and the spread on bonds and fixed income securities are likely to be compressed as ratings create greater credit differentiation among borrowers, since investors are able to access more information.

CEO of CariCRIS, Venkat Raman, emphasising  the benefits of CariCRIS, said that the company had outlined a “regional frame of reference.” Raman also pointed out that CariCRIS had adopted an “interactive process, with its own analytical integrity.” As such, because of the different interests that financial institutions represent, Raman said that they should not  “be grouped together, but must be viewed separately.” The shareholding of CariCRIS is distributed among several entities, including central banks, multilateral financial institutions, insurance companies and mutual funds. As many as 19 Caribbean countries are part of the agency, with TT having the largest interest at 37 percent, while Jamaica follows close behind with 24 percent. While the agency is already on stream, they expect to gather even greater momentum in the future. In its frequently asked questions section, CariCRIS first addresses the burning question of what exactly is a credit rating. According to the experts, “A credit rating is an informed opinion grounded in rigorous analysis of the relative credit quality of borrowers and the debt instruments they issue.” It is made clear however, that a credit rating is neither an audit of an entity, nor is it a recommendation to buy, hold or sell a debt instrument, nor a guarantee of repayment on a debt instrument.

While many businesses in TT may be familiar with this definition, and many may already have a global rating from Standard and Poor’s, Moody’s and Fitch, it may be questioned as to what could be the benefits of having a CariCRIS rating as compared to these global ratings. According to CariCRIS, global rating agencies assess the creditworthiness of a debt instrument relative to other debt issues and issuers worldwide when they assign global scale credit ratings. However, in the Caribbean, where there are smaller national economies, there are few assigned global scale ratings and they tend to be bunched together at the lower end of the scale. The company says that by using CariCRIS ratings, regional or global investors are provided with the “most relevant and comprehensive independent commentary on your company.” This is because the CariCRIS regional scale rating assesses creditworthiness relative to all other Caribbean debt issues and issuers. Of course, concern over the CariCRIS regional or national scale rating with a global scale rating by S&P, Moody’s or Fitch, would be of concern, but as CariCRIS states, “Every credit rating only has meaning when compared with other ratings on the same scale.”

As a result of this, “A regional or national scale rating does add focus and give additional information to that conveyed by the credit rating of a debt issue or issuer on a global scale.” Naturally, confidentiality issues arise when it comes to financial matters. CariCRIS personnel, bound by rating request or rating mandate, do not disclose any non-public information without written consent. In addition to this, all employees are bound by a code of ethics, and this prevents any personnel from using the information for personal gain. Despite the absence of a track record, CariCRIS still aims at being the Caribbean’s premier lending agency, as it is “backed by a tremendous pool of technical expertise.” In order to ensure success, CariCRIS has entered into a technical consulting agreement with CRISIL Limited of India. CRISIL has invested in the equity of CariCRIS, and has used its resources in assisting CariCRIS in establishing rating methodologies and to provide intensive training to CariCRIS personnel. In addition to this, CariCRIS has implemented a rating committee, comprised of professionals with experience in credit, financial and capital markets, economics, business and actuarial sciences.