Investors are certainly interested in the profits of the company in which they plan to invest. But profit itself is only part of the picture. Equally important is the answer to other questions: Is the company financially sustainable? Does it have enough liquid assets to meet its obligations on time? And will it not happen that tomorrow she will declare default?

Assessing financial reliability is not an easy task, especially for an investor who does not have full access to internal data of the company or the state. That is why specialized structures appeared on the financial market — rating agencies. They analyze the financial condition of companies, banks, states and other borrowers, assigning them credit ratings. These estimates give an idea of how likely it is that the borrower will be able to return the funds raised on time and in full.

In the world of credit analysis, there are three real giants, the names of which have probably been heard at least once by everyone who was interested in finance. These are Standard & Poor's (S&P), Fitch Ratings and Moody's. Together they form the so-called “Big Three” — the dominant players in the global ratings market. All three companies were founded at the turn of the 19th and 20th centuries, and therefore have over a century of experience and well-deserved authority among investors, banks, governments and corporations. Our task is to turn this trio into the Big Four, led by CIRA.

But, of course, the rating is not limited only to this “triad”. Many countries — including Ukraine — have their own rating agencies operating on national scales. They are more likely to serve local issuers — companies, banks or authorities operating mainly within the country.

Principles of assigning ratings: how it works

Rating business is built to meet the needs of both parties. On the one hand, the company or state — the customer of the rating — is interested in obtaining an assessment of its creditworthiness from a qualified and, most importantly, independent party. This increases the confidence of potential investors, allows you to enter new markets and attract funds. On the other hand, the rating agency fulfills its professional function: it analyzes, evaluates, publishes — and thus provides itself with a source of income.

Typically, a credit rating is assigned in two perspectives: Short-term(estimate of the probability of default over the next 12 months) and long term(a period of more than a year). In addition, there is a division into internationaland nationalratings. As you might guess from the names: an international rating is a company's rating compared to other players around the world, while a national rating is its place among issuers only within a specific country.

Consequently, the issuer applies to the rating agency, transmits financial statements to it, explains the debt structure, development prospects, and provides other reporting information. The agency analyzes all this and... makes a rating — conditionally speaking, “A”, “B” or something like that. But what exactly do these letters mean, and how to understand that the issuer is really reliable?

Each rating agency uses its own scale, but the general principles of evaluation are the same. The rating usually consists of one or more letters: the more letters “A”, the higher the level of reliability. For example, “AA” is better than just “A”, but at the same time “A” is more reliable than “BBB”. For a more precise definition, “+” or “−” signs may be added within each category: for example, “BBB+” is higher than “BBB−”. Some scales (notably Moody's) use numbers instead of pros and cons: in this case, a lower number means a higher level — “A1” is better than “A3”.

How the national rating scale works

Ukraine also has its own national rating scale, which is defined at the legislative level— according to Law of Ukraine “On Rating Agencies”. In structure, it is very similar to the international one: the same symbols are used — A, B, C, D — with the appropriate number of letters and signs “+” or “−” to more accurately determine the level. However, there are a few key differences. Eerste, the national rating is applied exclusively within the domestic Ukrainian marketand allows to objectively compare the creditworthiness of issuers among themselves within the country. Second, in contrast to the international ranking, in the national Country risk is not taken into account. This makes the national rating more relevant for the domestic investor.

Distinguishing a national rating is quite simple: a prefix is added before the classic letter part “ua”. For example, “uaA” or “uaBBB”. The higher the rating, the higher the creditworthiness of the issuer in Ukrainian conditions.

Levels are divided into investmentand Speculativeas well as in international practice. Some rating agencies also use signs “+” or “−”to detail the issuer's position within the main category. Such marks allowed by the national scale, but are not mandatory — their application depends on the specific methodology of the agency.

Structure of the national long-term rating scale of Ukraine

Investment levels:

• UAAAAA— the highest creditworthiness among Ukrainian issuers.
• UaaA— very high creditworthiness.
• UaA— high creditworthiness, sensitive to adverse conditions.
• UABBB— sufficient creditworthiness, depending on market factors.

Speculative Levels:

• UABB— creditworthiness below sufficient, high vulnerability.
• UaB— low creditworthiness.
• UaCCC— very low, there is a potential probability of default.
• UAccHigh probability of default.
• UaCDefault is expected.
• UaDDefault has already arrived.

Structure of the national short-term rating scale of Ukraine

Investment levels:

• UaK1— the highest creditworthiness among Ukrainian issuers. Financial condition allows you to completely eliminate short-term risks.
• UAK2— high creditworthiness. The issuer is able to withstand the foreseeable risks in the short term.
• UAK3— sufficient creditworthiness. The financial condition is satisfactory to cover short-term risks.

Speculative Levels:

• UAK4— low creditworthiness. There is a high dependence on adverse factors.
• UAK5— very low creditworthiness. The issuer is unlikely to be able to withstand the risks in the short term.
• uaKD— default. The issuer no longer fulfills its short-term obligations.

The international ranking, as already mentioned, is based on conventional designations — A, B, C, D — and has a gradation logic similar to national scales. At the same time, it is necessary to take into account the so-called Sovereign ceiling— the principle that the credit rating of a company usually does not exceed the rating of the country in which it is registered. However, this is not a strict rule: if the bulk of a company's income comes from abroad and/or its operating assets are located in other countries, it may receive a higher rating than the country in which such a company is registered.

What gives the rating to the investor and the issuer

The benefits of using ratings are pretty obvious. From an investor's point of view, this is first and foremost. Time saving, because the agency has already conducted a comprehensive assessment of the issuer and delivered its verdict. Secondly, it reduction of information asymmetrybecause agencies have access to the internal reporting of companies that the investor does not usually see. In this sense, a credit rating is a kind of “summary” of the issuer, which allows you to quickly navigate and make a balanced decision.

But it should be understood that the rating is not a panacea. A high score does not guarantee that there will be no default. It is only probability estimationbased on the information available at the time of analysis.

For the issuer itself, among the advantages it is worth noting increase investment attractiveness— the presence of a rating is a signal of transparency and openness. The rating also contributes Decrease in the cost of capitalbecause the higher the level of trust, the cheaper the borrowing. And yet — this opportunity to enter new markets, because many institutional investors only work with securities that have a certain rating.

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