December 15, 2011
Moody’s Corporation, the world’s oldest credit rating agency announced that it has taken steps to commence business in Nigeria, given the country’s regional significance and the demand for ratings not only for financial offers but also counterpart risk management.
This disclosure was made by the vice-president, Business Development-EMEA, Michael Korwin, at a stakeholders’ breakfast session held recently in Lagos in collaboration with AME&T group and FutureView Financial Services Limited. The meeting according to him, was to introduce Moody’s and its services to the corporate community in Nigeria.
Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis providing expertise that contributes to transparent and integrated financial markets. Moody’s ratings and analysis track debt covering more than 110 countries, 12,000 corporate issuers, 25,000 public finance issuers, and 106,000 structured finance obligations.
Being the first and oldest rating agency, the rating securities was invented by John Moody in 1909 with the purpose of providing investors with a simple system of gradation by which future relative creditworthiness of securities could be gauged. Explaining the concept, Korwin indicated that Moody’s rating methodology was divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics. Besides quantitative factors, qualitative aspects like the assessment of management capabilities, play a key role in arriving at the rating for an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer and issue. Rating determination is a matter of experienced and holistic judgment, based on the relevant quantitative and qualitative factors affecting the credit quality of the issuer which considers the available management structures and the financial flexibility of the company to be rated. These put together depicts the risk value of companies in Moody’s rating.
His said: “In doing the rating, Moody’s takes certain factors into consideration. The analytical study of the business risk profile of the entity, corporate strategy, management structure and liquidity. The rating process usually takes place between eighty to 90 days” he said.
Korwin constantly refused to benchmark his company with the very limited competitors in the marketplace, given the extreme conservative stance of rating agencies but indicated that over 80% of the largest institutional investors access Moody’s ratings. He further observed that ratings involve a look into the future, and by its nature, subjective.
Moreover, because long-term credit judgments involve so many factors unique to particular industries, issuers, and countries, Moody’s believes that any attempt to reduce credit rating to a formulaic methodology would be misleading and would lead to serious mistakes and so Moody’s uses a multidisciplinary or “universal” approach to risk analysis, which aims to bring an understanding of all relevant risk factors and viewpoints to every rating analysis.
By relying on the judgment of a diverse group of credit risk professionals to weigh those factors in light of a variety of plausible scenarios for the issuer and thus come to a conclusion on what the rating should be.
The MD/CEO of Futureview Financial Services limited Elizabeth Ebi and Paul Andrew of AME&T who jointly organised the event in collaboration with Moody’s said that the advent of Moody’s into the Nigerian market will make a positive impact on the major corporate entities in Nigeria that have interest in the global financial arena. “We are looking at tapping from the huge wealth of experience of Moody’s with the hope of gaining the desired expertise to operate better and stronger in establishing a stable international presence”. Moody’s called on Nigerian companies to seize the imperative and subject their enterprises to ratings thereby giving them access to global institutional investors.