What is a credit rating?AnswerA credit rating is an opinion on the ability of an issuer or security issue to meet financial obligations in a timely manner, expressed using letters or symbols which can be easily understandable. Therefore, the credit rating plays a role of protecting investors against possible losses incurred due to lack of information on repayment probability as to a security. The credit rating is not a recommendation to buy or sell, or a forecast for future price, but data on the degree of default risk of a given security.
What types of securities does Korea Ratings' rate?AnswerAny type of debt or related obligations, e.g. CP, unsecured bonds(corporate bonds, financial bonds, and government and public bonds, etc.), asset-backed securities(MBS, P-CBO, etc.), and SOC bonds. A credit rating is mandatory for guarantors.
What are KR's rating scale and rating definitions?Answer
Long-term ratings(bond, SOC bond, guarantor, etc.) range from AAA, AA, A, BBB to BB, B, CCC, CC, C and D. Ratings from AAA to BBB are investment grade. Ratings from BB and below are speculative grade, which indicates that the timely payment of principal and interest on a given security is likely to be affected largely by adverse business conditions. A plus(+) or minus(-) sign may be added to rating symbols ranging from AA to B to indicate their relative standing within each rating category.
Short-term ratings(CP) range from A1, A2, A3, B to C and D. Ratings from A1 to A3 is investment grade. Ratings from B and blow are speculative grade. A plus(+) or minus(-) sign may be added to rating symbols ranging from A2 to B to denote their relative status within each category.
How do the capital markets use ratings?AnswerRatings are used to determine interest rates, assess risk premium, and monitor the investment portfolio consisting of bonds on the part of investors. They are also used as a guideline for credit risk, and supportive information for corporate lending decision and for credit check. Moreover, the ratings help to provide issuers with stable access to diverse sources of capital, reduction in funding costs, and efficiency gains in bond issues. Regulators use ratings to oversee and monitor the financial health of financial institutions, insurance companies and public enterprises. A credit rating system helps to address the problems of information asymmetry and information acquisition costs, as well as lubricate the capital markets. The credit rating system contributes to advancement in the financial market by transforming collateral-based financial practices into credit-based and project-based practices.
What documents should be presented for credit assessment?Answer
The following documents ought to be submitted:
- Credit rating agreement(KR's form)
- 1 copy of business license
- Primary corporate data(KR's form)
- Financial statements, auditor's report, annual report, etc
- Other reference materials