COLLISTER
THE CARIBBEAN'S first regional credit rating agency, the Caribbean Information and Credit Rating Services Limited (CariCRIS), formally launched its operations in Jamaica on Wednesday.
CariCRIS is widely held, with a shareholder base including central banks, multilateral agencies, commercial banks, insurance companies, brokerage houses,
mutual funds, a stock exchange, and India's premier rating agency CRISIL, now majority owned by United States rating agency Standard and Poors.
Chairman of CariCRIS, Mr. Terrence Martins, former Group CEO of RBTT, described the initiative as focused on fostering the shared mission of an integrated, vibrant Caribbean capital market by supporting the development and integration of regional debt markets in the Caribbean.
Mr. Martins argued that the availability of "Regional Scale Ratings will facilitate a greater depth of locally relevant credit information and a higher degree of differentiation in the creditworthiness of regional issuers than is possible on the global rating scale used by global rating service companies. This is because global scale ratings available today in the Caribbean are few and most of them are bunched at the lower end of the scale."
RATINGS
In an interview with the Financial Gleaner, Mr. S. Venkat Raman, the CEO and chief rating officer of CariCRIS, explained that "All ratings are relative. For a U.S. or UK-based investor with worldwide investment choices, the Global rating provided by Standard and Poors and Moodys is more relevant." For this type of investor, the fact that all Jamaican investors will be B or B - due to the sovereign country rating limit is not a problem.
However, in looking at a company, such as a GraceKennedy, with a significant degree of assets, as well as, most importantly, cash flows outside of Jamaica, a regional scale rating would provide much more information as to its better credit profile.
In a short address, Mr. Keith Duncan, president of the Jamaica Security Dealers Association (JSDA), gave a market players' perspective on the utility of credit ratings. He said, "As a key stakeholder in the financial markets of Jamaica, the JSDA fully supported the idea of a regional credit rating agency and saw it as another important step towards the full integration of regional bond markets."
WELL-ESTABLISHED
The keynote address was delivered by Minister of Finance Dr. Omar Davies, whom Mr. Martins had previously wished "success in his quest for upward mobility". Minister Davies said that "CariCRIS could not have come at a better time in the context of the growth of the CARICOM Single Market and Economy. The benefits of credit ratings are well-established and the introduction of regional credit ratings will help to further promote the regional capital markets."
He added that "For investors and issuers this initiative will benefit them by committing them to a higher degree of financial discipline and transparency in the marketplace. For credit institutions such as banks, this will mean a transition towards rating-linked credit decisions, with lesser emphasis on other features, such as guarantees."
Adding a word of advice to the rating agency, the Minister said: "in achieving its objectives CariCRIS would also have to establish its own credibility through the quality of its ratings. In this vein, Minister Davies noted that the governance architecture that CariCRIS has adopted with the separation of the Board and Rating Committee functions was a step in the right direction.
Whilst offering his "total support of CariCRIS", the Minister suggested that he did not see the need to move beyond a regional scale to a national rating scale in the context of the drive towards the CSME. However, in a follow up interview, Mr. S. Venkat Raman provided the rationale for the need to go beyond a regional to a local rating scale.
NATIONAL SCALE
"As long as there is a market for issuers and investors in local currency e.g. Jamaican dollars, then you will need a national scale. You need to be able to distinguish the creditworthiness of the Jamaican Government from that of a Lascelles, who would in turn also need to distinguish itself from that of a smaller or medium sized Jamaican company. " He agreed that, for example, "the widespread issuance of commercial paper could come back on the back of ratings, assuming regulatory approval".
At the seminar, Mr. Venkat Raman said: "Institutional investors, such as national insurance or social security boards, trust funds, pension funds, money market funds and insurance companies, which handle large amount of public funds and have a fiduciary responsibility to do judicious investments, can now do a better evaluation of credit risk and secure their investments by asking for a credit rating before they invest. Before CariCRIS this was really not an option available to them." He argued that the key goal of CariCRIS was to protect investors by changing the investment culture to make it more risk sensitive. In his view "Crises happen when you put a lot of emphasis on name based lending".
