What is Credit Rating?
Credit rating is a qualified assessment and formal evaluation of a company's credit history and capability of repaying obligations. It measures the default probability of the borrower, and its ability to repay fully and timely its financial debt obligations.
Generally, international rating agencies assign short-term and long-term credit ratings.
Short-term rating gives the benchmark of the likelihood of borrower's default within one year.
Long-term rating evaluates the likelihood of default over longer time (up to the lifetime of the securities issued).
Benefits of Credit Rating
Credit Ratings widens investment horizons by helping borrowers to obtain wider access to investment capital reduced funding costs and add financial flexibility. A Credit Rating from an International Rating Agency can provide access to international pools of debt capital to high quality borrowers in the Maldives.
Borrowers can use ratings as 'credit passport' to communicate their credit quality to the investors.
A viable independent Rating System will contribute to the development of healthy capital markets. However, Rating Agencies works best in conducive environments.
Licensing of Credit Rating Agencies
Credit Rating Agencies will be licensed under the Securities Act. CMDA is working on a regulatory framework for Licensing Credit Rating Agencies.
The licensing conditions and other requirements will be announced soon. In the meantime CMDA would like to invite expression of interest from Rating Agencies to start Rating Service in Maldives as part of the exercise of collecting information to gauge interest of stakeholders.
The IOSCO Code of Conduct
In September 2003, the International Organisation of Securities Commissions (IOSCO) published its Statement of Principles Regarding the Activities of Credit Rating Agencies
(PDF). This document is aimed at reinforcing investor protection, market fairness, efficiency and transparency and reducing the systemic risk.
