Methodology foundations of rating

Credit rating is assigned to companies on the basis of inherent risk comprehensive analysis, that is assessment of a company’s status at the market, and dynamics of markets where a company operates, its industrial capacities and potential abilities, as well as volume of investment resources, required to realize the potential, financial stability and success, and the corporate management level. In the process of assigning rating of reliability to corporate bonds issue we additionally check specific conditions of placement, circulation and payment for the bonds, in particular, quality of presented collateral, amount of coupon payments, terms and conditions of offers etc.

While analyzing risks our agency experts pay special attention to dynamics of main product markets for a company, and to determining factors like level of the state regulation, existing competition level and its limitations, access to raw materials and other components required for successful development of the company, factors influencing demand for the company products etc. The company competitive advantages and its weak spots are of special importance, since these factors specify future financial stability and success.

The company industrial capacities and its potential characterize future financial earnings due to sales (or provision of services), and the level of its technical condition permits to assess a required volume of investments to support the current product quality. Special attention is paid by our analysts to studying the company investment plan and level of diversification of its activities, since these indicators determine the level of its financial stability.

Management quality and strategic planning level of any enterprise determine its mid-term development. Under Russian conditions other features are vitally important: legal ownership of an enterprise, presence of transparent and clear decision-making procedures, level of information openness etc.

Upon analyzing these three factors, determining a company’s capacities and prospects, the agency analysts assess financial status and stability of the enterprise. Debt servicing, profitability and liquidity indicators are of paramount importance. If necessary, the agency experts may correct initial data to obtain adequate results (for instance, if analyzing accounting of construction companies due to specific reflection of certain operations in the balance and profit-and-loss report).

The amount of information to assign a rating is determined individually for each company, depending on the corresponding sector of industry, the company structure and other factors. Anyway, general information demands go as follows:

• Financial accounting for the last 4 years
• Annual reports and information memoranda
• Business plans of the largest projects and plans for incoming cash for mid-term perspective (up to three years)
• Strategic development
• Information on the company’s structure
• Information on the company’s industrial activity
• Corporate management legal documents
• Detailed information on structure and quality of debts