SALEEM SATTAR

ROLL NO.05

PACRA
PACRA stands for Pakistan Credit Rating Agency. It was first credit rating Company established in Pakistan. It was established in 1994 between the joint venture of IBCA Limited (the international credit rating agency), International Finance Corporation (IFC) and the Lahore Stock Exchange. The primary function of PACRA is to evaluate companies willingness to fulfill its debt obligations. PACRA is geared to provide a full range of credit rating services. This includes the rating of corporate entities and fixed income instruments. The ownership and management structure of PACRA ensures complete independence from any direct or indirect control of the Government, any private sector business group or financial institution. A rating assigned by the rating committee, which includes senior management of PACRA, reflects PACRA's objectively formed opinion of credit risk. Other rating reviews carried out by PACRA include Financial Strength ratings of modarabas, Mutual Fund ratings and Insurer Financial Strength (IFS) ratings for insurance companies

PACRA's Rating Process

The rating process begins with a careful review of an entity's published information. From this review, analysts (normally two, the lead and support analyst, are assigned to each rating assignment) determine what additional data are needed and a detailed questionnaire is sent to the client. An initial rating assessment is made and discussed internally. A discussion agenda is then prepared for a meeting with the client company's senior management. The meeting is wide-ranging, covering the company's financial position, earning trends, operating practices, competitive standing, future prospects, the economic environment and many other issues that can have a bearing on PACRA's assessment. In order to ensure full understanding of their position, companies entrust PACRA with confidential information, which is not disclosed in rating reports but which is certainly taken into account when assigning the ratings.

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SALEEM SATTAR

ROLL NO.05

JCR-VIS
JCR-VIS is Pakistans only data bank and financial research organization, operating as a Full-service rating agency and known for providing high quality independent rating services in Pakistan. Initially the company was incorporated as a joint venture between Vital Information Services (VIS) , Karachi Stock Exchange, Islamabad Stock Exchange and Duff & Phelps Credit Rating Co. (DCR) back in 1997.Subsequent to DCRs merger with Fitch IBCA, DCR sold its interests in DCR-VIS to VIS. In 2001 JCR and VIS entered into a Joint Venture Agreement whereby JCR acquired 15% share in DCR-VIS Credit Rating Co. Ltd. of Pakistan. As a result of this agreement, the name of the company changed from DCR-VIS Credit Rating Co. Ltd. to JCR-VIS Credit Rating Co. Ltd. (JCR-VIS).

Major Stakeholders
JCR-VIS was established in 2001 as a joint venture between Japan Credit Rating Agency, Ltd. (JCR), Vital Information Services (Pvt.) Limited (VIS), Karachi Stock Exchange (KSE) and Islamabad Stock Exchange (ISE).

JCR-VIS Services
1) Entity rating is JCR-VISs opinion of the general creditworthiness of a companys senior unsecured debt. Clientele is classified into different groups as: a) b) c) d) Commercial Banks Financial Institutions Micro Finance Banks Investment Banks e) f) g) h) Mutual Funds Leasing Companies Modarabas Security Firms

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SALEEM SATTAR

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2) Instrument Ratings: Rating of financial instruments like TFC/CP denotes its creditworthiness with respect to a particular debt security based on relevant risk factors. a) Long Term Corporate Debt Instruments b) Short Term Corporate Debt Instrument 3) Real Estate Grading: One of the new developments in the local rating business is the rating of real estate agencies and developers. 4) Corporate Governance: in March 2002, the Securities and Exchange Commission of Pakistan (the SEC) issued the Code of Corporate Governance (the Code) to establish a framework for good governance of companies listed on Pakistan's stock exchanges. JCR-VIS also provides ratings based on corporate governance compliance to SECP and SBP. 5) Indicative Ratings: JCR-VIS also conducts indicative ratings for entities that wish to get an initial idea regarding their ratings prior to going for a full formal rating review. The indicative ratings as the name suggests merely indicate the rating band or category in which the entitys ratings are likely to fall, if a formal rating review were to be conducted. As such, indicative ratings are not meant for public dissemination and are meant only for the consumption of the management of the entity.

JCR-VIS Rating Process

In preparing a rating, the JCR-VIS analyst first review a companys reports and published figures to determine what additional information was needed from the client. The analyst then met with the clients senior management (CEO/CFO) to discuss the clients financial position, earning trends, operating practices, competitive standing and other issues that might affect the clients credit worthiness. The analyst keep in contact with the clients for interim figures and other corporate developments that might affect JCR-VISs assessment. They also monitor macro-economic and political factors or trends that might affect the clients credit standing. A draft report then sent to the client for review to ensure the accuracy of information and that no confidential data was included. The final report then reviewed by a Rating Committee.

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SALEEM SATTAR

ROLL NO.05

Differences between Pacra and Jcr-vis

PACRA JCR-VIS
AAA AAA Highest credit quality. The risk factors are Ratings denote the lowest expectation of credit negligible, being only slightly more than for risk- risk This capacity is highly unlikely to be free Government of Pakistans debt adversely affected by foreseeable events. AA AA+,AA,AARatings denote a very low expectation of credit High credit quality. Protection factors are strong. risk. They indicate very strong capacity for timely Risk is modest but may vary slightly from time to payment of financial commitments. This capacity time because of economic conditions. is not significantly vulnerable to foreseeable events A+, A, AA Good credit quality. Protection factors are ratings denote a low expectation of credit risk. adequate. Risk factors may vary from possible The capacity for timely payment of financial changes in the economy. commitments is considered strong. BBB+, BBB,BBBBBB Adequate credit quality. Protection factors are Ratings indicate that there is currently a low reasonable and sufficient. Risk factors are expectation of credit risk. The capacity for timely considered variable if changes occur in the payment of financial commitments is considered economy. adequate. BB BB+, BB, BBRatings indicate that there is a possibility of Obligations deemed likely to meet. Protection credit risk developing, particularly as a result of factors are capable of weakening if changes occur adverse economic change over time; however, in the economy. Overall quality may move up or business or financial alternatives may be available down frequently within this category. to allow financial commitments to be met. B B+, B, BRatings indicate that significant credit risk is Obligations deemed less likely to be met. present, but a limited margin of safety remains. Protection factors are capable of fluctuating widely Financial commitments are currently being met; if changes occur in the economy. Overall quality however, capacity for continued payment is may move up or down frequently within this contingent upon a sustained, favorable business category or into higher or lower rating grade and economic environment. CCC CCC, CC, C Considerable uncertainty exists towards meeting Default is a real possibility. A CC rating the obligations. Protection factors are scarce and indicates that default of some kind appears risk may be substantial. probable. C ratings signal imminent default CC A high default risk C A very high default risk D Defaulted obligations

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SALEEM SATTAR
PACRA

ROLL NO.05

1. PACRA's ratings are an assessment of the credit standing of entities in Pakistan. 2. They do not take into account the potential transfer or convertibility risk that may exist for foreign currency creditors. 3. A plus (+) or minus (-) may be appended to a rating to denote relative status within major rating categories. Such endings are not added to the AAA long-term rating category, to categories below CCC, or to short- term ratings. 4. PACRA's rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the securitys market price or suitability for a particular investor.

JCR-VIC
1. JCR-VIS places entities and issues on Rating Watch when it deems that there are conditions present that necessitate reevaluation of the assigned rating(s). 2. A Rating Watch announcement means that the status of assigned rating(s) is uncertain. Development in factors other than those that necessitated the Rating Watch may result in a rating change, while the rating(s) continues to be under Rating Watch 3. The three outlooks Positive, Stable, and Negative qualify the potential direction of the assigned rating(s). An outlook is not necessarily a precursor of a rating change. 4. In the event that JCR-VIS deems that, as a result of lack of corporation with regard to the provision of information or for any other reason it is not possible to access the current status of the assigned rating(s), the ratings will be suspended. 5. Ratings are withdrawn in the following situations a) Non-renewal/cancellation of the rating agreement b) Maturity of a rated issue c) Cessation of an entity for any reason.

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