RusRating Announced New National Rating Scale

OREANDA-NEWS. November 1, 2011. RusRating hereby announces the adoption of a new national rating scale, that will be applied alongside its existing scale. In response to shifting global economic processes and the obvious need for a new economic paradigm it becomes clear that rating scales must also adapt. As rating agencies bear an increased social responsibility for their evaluations and as the range of rating users widens, it becomes particularly important to ensure their rating scales be made resilient to fluctuations in sovereign risk, while at the same time widening the range of possible rating gradations for entities.

Current practice shows that investors and financial experts are most interested in risk assessments where expected losses fall into the 0-20% range, but the variation in risk between different levels of the rating scale for highly-reliable borrowers is less than 1%. For risks in the 30-60% range – typical where defaults on corporate bonds are frequent – most existing methods offer just one or two gradations, which leads to a misplaced compression at the lower end of the rating scale. This effect is especially apparent in countries with a comparatively low sovereign rating.

In RusRating’s view the new approach is essential to providing a stable rating scale under volatile domestic and global market conditions, a scale that is independent of distortions that affect Russia’s sovereign rating and the sovereign ratings of other developing countries. The highest possible rating on the new national scale will be “AAA”. This is in line with the practice adopted by leading rating experts in the word economies with market, who see the rating first and foremost as a measure of the ability and willingness of a borrower to meet its obligations without taking into account factors that have little impact for domestic investors.

In order to facilitate the adoption of the new national scale, RusRating intends to assign ratings on both the new and current scales (national and international). It should be noted that an “AAA” rating on the national scale is a maximum that corresponds to the Russian Federation’s sovereign rating of “A” on the current (international) scale, although some corporate entities could in principle receive a higher rating. It should also be noted that this assessment of sovereign risk in Russia corresponds to the “A” rating assigned to Russian Federation debt by Dagong, China’s top rating agency.

RusRating professionals believe that the adoption of a new national scale will meet with the approval of the financial community and will make the process of assigning ratings and the basis of those ratings more transparent.

The agency’s revised credit rating scale is presented below.

* Credit rating assigned on a bilateral contractual basis with a rated institution.