The BRICS nations are looking to set up a new credit-rating company in an effort to break the predominance of the big three developed-nation firms.
Seeking to lower borrowing expenditures they say are excessively high thanks to the assessments of S& P Global Ratings, Fitch Ratings and Moodys Investors Service, different groups including Brazil, Russia, India, China and South Africa aims to create a challenger with a different fee structure.
The creation of credit ratings company that doesnt will vary depending on revenue from clients who want their debt assessed is actively under discussion, ” Yaduvendra Mathur, chairman and managing director of the Export-Import Bank of India, said by phone on June 16. The government-backed lender is part of a working group analyzing the feasibility of a new credit-assessment company before the next BRICS summit due in October.
The biggest obstacle for a BRICS credit-assessment company would be persuading U.S. and European investors that the ratings are assigned without government pressure. Critics of S& P, Fitch and Moodys say they are beholden to the companies they rate because their revenue comes from these clients.
It will take a while for the BRICS credit rating agency to acquire that sort of credibility, ” said Rajrishi Singhal, senior fellow for Geoeconomics Studies at Gateway House. It wont happen from day one. Investors will be watching very closely how they rate and what are the processes they have undertaken.”
U.K.-based Fitch said the ratings of emerging marketplaces are limited by a reliance on external fund, which often leaves them with less flexible to address economic and political volatility.
Any rating agency must establish a reputation for freedom, and the management of conflicts of interest, ” Daniel Noonan, a Fitch spokesman, said in a June 16 e-mail. Fitch believes strongly in healthy competition, ” he added.
S& P and Moodys, both based in New York, didnt answer e-mailed topics sent June 16.
Developing nations say they receive harsher appraisals than their developed equivalents, which constructs borrowing more costly for them because corporate ratings are capped at the sovereign level.
My bonds are more expensive than many other countries, ” said Mathur, whose foreign-currency debt is ultimately priced at Indias lower-rating level despite an AAA rating from Crisil Ltd. — a division of S& P that simply devotes ratings on debt issued within India. This is not the right architecture.”
Crisil is spearheading research into the new pricing model for the BRICS ratings company and will share its findings with the EXIM Bank, Mathur said. A final decision on the structure will be taken by political leaders in the grouping, he added, without further clarification on alternative pricing models. Crisil declined to comment on its research.
The big three credit-rating companies currently control more than 90 percentage of the market, and have been criticized for designating top ratings to risky debt that triggered the 2008 financial crisis.
In recent years, BRICS nations have clashed with international assessors. Russia started its own rating agency this year after condemning its downgrade to junk as politically motivated, while one of Chinas three biggest credit-assessment companies currently rates U.S. foreign-currency government debt lower than both China and Russia.
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