Indian firm gets LoI to opearate credit rating agency

Published On: December 12, 2016 12:50 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Dec 12: Securities Board of Nepal (Sebon) has provided Letter of Intent (LoI) to Credit Analysis and Research Limited (CARL) to work as a credit rating agency in Nepal, paving the way for the Mumbai-based company to enter the Nepali capital market which has seen monopoly one rating company. 

Issuing a statement on Sunday, the Sebon said that it decided to grant initial consent to CARL for promoting competitiveness and offering service choices in the market.

Companies that plan to issue securities and instruments worth more than Rs 30 million as well as mutual funds are required to get credit rating.  

CARL will have 51 percent stake in the new credit rating company. Similarly, six Nepali companies -- Vishal Group, Emerging Nepal Ltd, Prudential Insurance Company Nepal, Nepal Re-Insurance Company Limited (Nepal Re), Global IME Bank Ltd and Life Insurance Corporation (Nepal) Ltd - and few individuals will hold remaining 49 percent stakes.  

Binod Atreya, the CEO of Emerging Nepal Ltd which will have 10 percent stakes in the upcoming credit rating agency, told Republica that the new credit rating company, which would be incorporated as 'Care Ratings Nepal Ltd', plans to provide all credit ratings related services in Nepal. "The credit rating agency will provide services like instrument and securities ratings of companies once it comes into operation. Also, our long-term plan will be to offer ratings of creditworthiness of borrowers. We will launch this service once the regulator allows us," said Atreya. 

He also said the credit rating company will start operation within four months. 

CARL will now incorporate rating company, put in place necessary infrastructure and seek operational license from the Sebon, added Atreya.

The new company will have paid-up capital of Rs 50 million compared to the minimum requirement of Rs 20 million. Sebon officials say that they are in the process of increasing the paid-up capital requirement for credit rating companies. 

Observers say that the entry of new company will make the credit rating services competitive and offer alternative to service seekers. "There is only one credit rating company in Nepal so far. If a new company comes on board, the credit rating service and its market will become competent. Companies seeking rating services for their instruments and securities will get options," Rewat Bahadur Karki, chairman of Sebon, said ICRA Nepal Limited (ICRA Nepal), a subsidiary of ICRA Limited (ICRA) of India, is the only credit rating company in operation in Nepal at present.

The decision to allow new company to come into the market comes in the wake of listed companies, particularly bank and financial institutions (BFIs), rushing to raise their paid-up capital by issuing rights and follow on public offering. With only one rating company in operation, many listed companies were also complaining about the delay in their plan to complete credit rating for issuing instruments.

Meanwhile, DUN & Bradstreet, an American business service company, has also shown interest to start credit rating service in Nepal.  The Sebon, however, is yet to take a formal call on the interest of the US company.

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