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ACRA came to the fore just as international agencies officially stopped issuing local credit ratings for Russian companies. This was widely expected after Russia said new regulations will force international rating agencies working in the country to issue local data through a Russia-regulated subsidiary and guarantee they won’t withdraw local credit ratings under outside political pressure.
TBP: When does ACRA plan to start issuing ratings?
Trofimova: ACRA was founded in late 2015, but will start issuing ratings once it has been included in the Register of the Central Bank in accordance with the Federal Law #222-FZ On the Activities of Credit Rating Agencies in the Russian Federation. The agency has been fully manned up, all of our internal procedures have been formulated and are being duly implemented, and we are moving forward with analytical work.
We filed our accreditation request on February 29 of this year, and judicially, the Central Bank should take a decision within six months after that date. In fact, we hope that it will be taken within the regulatory period.
You are the ‘new kid on the block’, what would you be doing differently from the BIG 3 credit ratings agencies – Moody’s, S&P and Fitch?
Where we differ the most from the Big 3 is a more in-depth understanding of the specifics of local economy and incorporating regional factors into the structure of credits ratings within various industries.
ACRA is not after reinventing the wheel, so to say, when it comes to creating a methodological base, since the fundamental principles of credit analysis are quite homogeneous across the globe. What we do focus on is benchmarking our methodology against the best world practices and offering the maximum consideration for the specifics of Russian companies and banks.
ACRA plans to assign ratings under a national scale. We have a perfect grasp of the pluses and minuses of this approach, and using it was a conscious decision from the start, since it is based on one of key requirements of the Russian legislation on rating activities. We want to guarantee that investors receive in-depth quality analyses of Russian credit risk, and I am convinced that this approach is one of our competitive advantages.
In the mid-run, we see ourselves expanding beyond the domestic market and potentially offering services in Eurasian Economic Union and BRICS as well. It is too early to go into specifics of our presence on those markets at this time, but clearly, the use of an international scale would look like a logical step if we decide to do that.
Why do you think Russia and the world need an alternative to these agencies?
First and foremost, ACRA does not intend to become an international agency large enough to play in the same league with the Big 3 in a year’s time. We see our primary goal in establishing ourselves as a highly qualified and well-trusted regional player capable of meeting our local investors’ needs, as well as the expectations of the regulator and other financial market players in terms of offering them top quality, objective, and competent credit risk assessments.
I believe that a need for players with a clear understanding of local risk specifics is similarly felt in other countries and regions of the world.
Moreover, in the Russian economic environment, the coverage of bond issuers with credit ratings remains extremely low; no more than some hundreds of Russia-based companies today can boast of having credit ratings. It is hard to say whether the reasons for this phenomenon are purely commercial (international credit agencies’ fees can be quite steep) or companies fail to comply with procedural requirements (international agencies analyze only IFRS-audited financial statements), or something entirely different, but the fact is that the majority of local companies have been completely cut off from the rating process that meets the global standards.
It becomes especially notorious with regards to small and medium-sized businesses and alternative finance sectors. We at ACRA hope to help bridge this gap and offer the local market the right mix of quality rating products at more affordable rating fees.
Do you think there is a divergence of sentiment between the reactions of markets and ratings agencies when it comes to assessing political risks?
Political factors may serve as a component of a sovereign rating only in terms of assessing a country’s institutional environment, stability, and predictability of its budgeting process and financial policy. In any other context, credit ratings should stand beyond politics, and most certainly be free of any political pressure. Although one cannot deny that political climates have not only always affected economies but served as their defining vectors, credit rating is one thing that measures a company’s adaptability to a changing political landscape.
Many are raising concerns that the ACRA would not be truly independent, backed as it is by the Kremlin. What would you say to them?
ACRA is a privately-owned, independent analytical venture, and we have taken good measures in order to mitigate that risk. We are keeping a close eye on the areas of compliance and do everything to minimize the potential conflict of interest. All of our policies are made public on our website (www.acra-ratings.com), and we adhere to them since the very first day of our operations.
We have made the most of the advantages a credit agency gets when being built from scratch on a relatively well-developed market by using the best international practices in all fields of rating activities. Namely, we have been able to achieve if not the most well-diversified, but definitely one of the most well-diversified ownership structures among rating agencies in the world.
Our shareholders are 27 companies and financial institutions, each holding a 3.7 per cent stake, that include banks, non-financial institutions, state-owned and privately-owned companies, and international businesses. We have a 100 per cent independent Board of Directors, with none of its members representing the interests of any given shareholder.
Shareholders are fully dissociated from the company operations and analytical work, and even the commercial and analytical functions are kept logistically apart within the company premises.
Any external pressure would be a hugely discrediting factor to the very idea of a rating model, and neither I nor my colleagues would consider working under pressure.
We have assembled our team with the sole purpose of establishing a genuine and trustworthy rating agency. Certainly, not everyone will be happy with our ratings, but I want to emphasize that credit ratings are not meant to be liked or disliked.
A credit rating is merely a tool that helps taking investment decisions. Our objective is to benchmark our rating process against the best world practices and exclude any potential conflict of interest in our work. The best value indicators for an agency’s credit ratings are whether they are in demand and how actively they are used by the investment community.
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