'Credit ratings improve cost efficiency, spur economic activity'

During a recent discussion with the managing directors of 60-odd spinning mills in this region, Rohit Mahajan, co-founder and Chief Executive Officer of Credit Works, impressed upon them the need to get their respective units credit rated.

“Credit rating has become the focus for bankers and CFOs. Optimised credit ratings not only result in improved cost efficiencies but spur economic activity as well,” Mahajan said.

Stating that Credit Rating Agencies (CRAs) such as Crisil, ICRA, CARE, India Ratings, Bricks, and SMERA have been authorised by the market regulator SEBI to rate the creditworthiness of companies, Mahajan explained that the CRAs also issue ratings for specific instruments such as bank loans, structured finance products, bonds, debentures, commercial paper, fixed deposits and certificates of deposits, mutual fund debt schemes, and IPOs.

“Ratings capture the likelihood of default as well as the severity of loss upon default. Companies of the highest quality are assigned long-term investment grade ratings from AAA to BBB-. Investment grade ratings bring benefits such as lower funding costs and increased financial flexibility for the issuer. Those that fail to make the cut are assigned non-investment grade and pay higher interest rates, face more restrictive covenants, and have limited access to the investor base,” Mahajan told the gathering.

Though public credit rating is not a requirement, companies issuing debt typically seek such a rating as it enhances their debt marketability, Mahajan said, and added that formulating an opinion on the creditworthiness of a company is not exactly “science” for there will always be a degree of “art” in the process and ratings.

Therefore, a thorough understanding of the intricacies, methodologies, and analytical approach of each rating agency would be an essential element in working with various agencies, he said, adding “rating companies though do not want to crack the code.”

Texpreneurs Forum, which facilitated the discussion, has engaged Crisil to do a feasibility study of the textile mills in the region.

D Prabhu, Secretary, Texpreneurs Forum, told BusinessLine that following the discussion, many spinning units in the region have evinced an interest to be rated.

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