Ramanisblog

Tag: Credit rating

  • S& P Rating, Report,Increase Debt to Improve Rating?

    S& P’s rating of India has come in handy for all and sundry to call for advanced reforms in Indian economy.

    The Ups and Downs of your Credit Rating
    The Ups and Downs of your Credit Rating (Photo credit: GDS Infographics)

    The report  cites ‘political indecision,slow implementation and introduction of Economic Reform‘ as the cause for S&P’s decision to downgrade Indian Economy.

    Look at S& P’s Rating.

    Country                   S&P rating               Debt as % of GDP

    Germany                    AAA                                 78.9

    UK                                 AAA                                 88.4

    US                                  AA+                                  106.6

    Japan                           AA-                                    235.8

    China                            AA –                                      22

    India                            BBB                                       67.6

    *

    What do the letter ratings mean?

    The general meaning of our credit rating opinions is summarized below.
    ‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
    ‘AA’—Very strong capacity to meet financial commitments.
    ‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
    ‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
    ‘BBB-‘—Considered lowest investment grade by market participants.
    ‘BB+’—Considered highest speculative grade by market participants.
    ‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
    ‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
    ‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
    ‘CC’—Currently highly vulnerable.
    ‘C’—Currently highly vulnerable obligations and other defined circumstances.
    ‘D’—Payment default on financial commitments.

    Note: Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

    Specific ratings are also available from Standard & Poor’s Ratings Desk by emailing ratings_request@standardandpoors.com. 

    http://www.standardandpoors.com/home/en/ap

    “Although finance minister Pranab Mukherjeehas put up a brave face on the economy, evidence that it is on the skids can`t be glossed over any more. The industrial growth rate was a mere 0.1% in April, after falling to -3.2% in March. The fall in overall GDP growth has begun showing up in shrinking employment numbers, with jobs in labour-intensive industries such as textiles being hit particularly badly. Like the threatened downgrade of India`s investment rating by global agency Standard & Poor`s, the finance minister`s reassurances too could acquire junk status unless backed by vigorous government action.

    The outlook on India`s sovereign ratings had already been revised down to the last notch of the investment grade last April. A further fall to speculative grade will not only significantly impact foreign investment inflows but also push up cost of borrowings from abroad, denting income and employment growth. The slowdown in growth and higher government spending has already eroded the targets for improvements in government finances and dampened investment flows. To reverse this trend, the government must end the policy paralysis which prevents it from implementing decisions in a wide range of areas, including multi-brand retail, pension, insurance, land acquisition, project clearances, railway fares, oil pricing, fertiliser subsidies and the goods and services tax.”

    http://timesofindia.indiatimes.com/home/opinion/edit-page/On-the-brink/articleshow/14065518.cms

    Countries with Higher Debt % to GDP are given better Rating,USA,Germany UK and Canada and Japan.

    Does it mean you increase your Debt to be rated as Stable?

    The rumbles on rating usually starts when US/Europe faces Monetary crisis.

    Is it to enable them to stabilize themselves at the cost of others?

    How is it that limping economies can help improve a better performing Economy?

    I know the reply will be in jargons, which does not make common sense.

    How has the increase in FDI in Insurance benefitted India?

    Policy Decisions to help multi-brand retail, pension, insurance, land acquisition, project clearances, railway fares, oil pricing, fertiliser subsidies and the goods and services tax are needed?

    For?

    To allow multi Brand Retail Chains,allow people.under the guise of Corporates to grab agricultural lands, increase Rail Fare, Goods and Service Tax?

    How are these Companies performing in relation to improving Indian Economy?

    Even to-day LIC  is performing better.

    Handing over infrastructural projects to foreign business may help them make more money.

    Why not pump India money for these projects?

    Yes policy indecisions are there.

    They are to be corrected,not necessarily the one relating to FDI alone.

    Look at Argentina,Brazil,Ireland, Greece and now Spain who followed IMF prescriptions till the other day!

  • Sovereign Rating For Countries and How it is Calculated?S&P Report On US.

    Sovereign Rating is a tool that helps the investors decide before investing in a country.

    A country’s financial health is determined by its past/present policies,economic indices and its global economic might.

    Risks are indicated and it helps the investors.

    Now US rating has been downgraded AA+ from AAA, which is the best according to Standard & Poor, an independent rating agency.

    AAAis the best rating for any country. On this scale, the ratings go down to AA+, AA, AA-, A+ and so on till the worst rating which is D, which means the government is in default. Downgrading on the scale means that the risk in investment in that country’s debt is assessed to have increased and because of this, existing investors might withdraw their money while future ones might prefer to invest in safer venues.

    How often have national governments defaulted on their debt?

    As a national government controls most of its affairs, in the case of default, it can’t in practice be forced to pay back its debts. Some part of its overseas assets might get seized and political pressure may be applied on it, but all of that gives little relief to the investors. The government also faces pressure from domestic investors. Governments rarely default. Typically, a government on the verge of a default enters into negotiations with the investors to try and reschedule the debt or roll them over.

    The market is driven by sentiments and in many cases, suspicious investors demand higher returns. There have been many incidents of sovereign debt crisis in the past. Recently, Greece, Ireland and Portugal were swallowed up by a crisis when the governments were unable to pay back investors. Similarly, in the early 1980s, Latin American countries were caught in a debt crisis as the foreign investments grew higher than their incomes and the governments were unable to pay back. Similar situations have also occurred in Mexico, Russia and Argentina.

    How is rating scale devised?

    The most important element in devising the scale is an analysis of the history of sovereign defaults. According to S&P, most of the defaults since the 19th century have occurred because of past policies which keep a government ill-prepared for sudden events like war, regime change or changes in trade patterns. There are essentially five key factors in determining the government’s rating.

    These factors are Institutional effectiveness and political risk; economic structure and growth prospects; external liquidity and international investment position; fiscal flexibility and performance combined with debt burden; and monetary flexibility.

    While some of these can be measured quantitatively, others are more qualitative in nature and hence the agency has devised scales to quantify them. For instance, political stability is rated on the basis of effectiveness, stability, and predictability of the sovereign’s policy-making, transparency of political institutions and so on.

    http://timesofindia.indiatimes.com/business/india-business/All-you-want-to-know-about-sovereign-rating/articleshow/9521615.cms

    Related:

    United States of America Long-Term Rating
Lowered To 'AA+' On Political Risks And
Rising Debt Burden; Outlook Negative
Overview
• We have lowered our long-term sovereign credit rating on the United
States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term
rating.
• We have also removed both the short- and long-term ratings from
CreditWatch negative.
• The downgrade reflects our opinion that the fiscal consolidation plan
that Congress and the Administration recently agreed to falls short of
what, in our view, would be necessary to stabilize the government's
medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness,
stability, and predictability of American policymaking and political
institutions have weakened at a time of ongoing fiscal and economic
challenges to a degree more than we envisioned when we assigned a
negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the
gulf between the political parties over fiscal policy, which makes us
pessimistic about the capacity of Congress and the Administration to be
able to leverage their agreement this week into a broader fiscal
consolidation plan that stabilizes the government's debt dynamics any
time soon.
• The outlook on the long-term rating is negative. We could lower the
long-term rating to 'AA' within the next two years if we see that less
reduction in spending than agreed to, higher interest rates, or new
fiscal pressures during the period result in a higher general government
debt trajectory than we currently assume in our base case
http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8