Way clear for setting up credit rating agencies

KATHMANDU, JUN 29 -

With the Ministry of Finance (MoF) having endorsed the Credit Rating Regulation 2011, the way has been cleared for the establishment of credit rating agencies (CRA) in the country. The MoF passed the regulation with minor amendments on Friday.

Nepali CRAs that had signed memorandums of understanding (MoU) with Indian agencies to set up joint ventures had been waiting for the regulation to be completed.

Himalayan Infrastructure Fund (HIF) has signed an MoU with Indian Credit Rating Agency (ICRA) to establish ICRA Nepal. Another prospective agency Credit Rating Agency Nepal (CRANE) has signed an MoU with India’s Care Rating.

ICRA Nepal had applied for a licence to the Securities Board of Nepal (Sebon) even before the regulation had been formulated. HIF will apply for a license again once the regulation comes into effect. “As soon as Sebon formally introduces the regulation, we will apply for a licence again,” said Maheshwor Prasad Shrestha, CEO of HIF.

Similarly, Suman Rayamajhi of CRANE said that his company would apply for a permit soon. “As we were waiting for this regulation to be brought out, it will not take us long to apply for a licence,” added Rayamajhi

Given the lack of experience in Nepal in operating CRAs, the regulation has stated that potential CRAs here will have to tie up with international rating agencies to set up a company. An entity seeking to operate a rating agency should come as a joint venture with international rating agencies having at least five years of experience in the business.

Credit ratings help ordinary investors to decide for themselves whether or not to put money in a particular company besides helping banks and financial institutions when making decisions regarding issuing loans to a company.

According to Shrestha, HIF has fulfilled all the requirements related to capacity building and will start operations once it receives the license. “We will start operating as soon as we are awarded the license. Initially, all our professionals will be from our venture partner ICRA; and slowly we will train, develop and hire local experts,” added Shrestha.

ICRA will own 55 percent of ICRA Nepal while the rest will be owned by HIF and local partners. “More than a dozen banks and financial institutions have submitted letters of interest, but we have not chosen our partner yet,” said Shrestha.

Experts said that establishing credit rating agencies in the country would further develop the capital market besides making information dissemination about the capital market more symmetrical.

“Investors and the general public will have access to information about listed companies, and it will make their investment decisions easier,” said former Sebon chairman Deepak Raj Kafle.

Posted on: 2011-06-29 10:46
http://www.ekantipur.com/2011/06/29/business/way-clear-for-setting-up-credit-rating-agencies/336487.html