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Sat May 27 11:48:12 SAST 2017

Brics nations aim to set up own ratings agency

Bloomberg | 2016-06-28 07:39:09.0
REUTERS
LENDING A HAND: Russian president Vladimir Putin, Indian prime minister Narendra Modi, Brazilian president Dilma Rousseff, Chinese president Xi Jinping and President Jacob Zuma pose for a group photo session during the sixth Brics summit in Fortaleza, Brazil

The Brics nations are looking to set up a new credit-rating company in an effort to break the dominance of the big three developed-nation firms.

Seeking to lower borrowing costs they say are excessively high thanks to the assessments of S&P Global Ratings, Fitch Ratings and Moody's Investors Service, the group - which consists of Brazil, Russia, India, China and South Africa - aims to create a competitor with a different fee structure.

The creation of a ratings company that doesn't rely on revenue from clients who want their debt assessed "is actively under discussion", Yaduvendra Mathur, chairman of the Export-Import Bank of India, said.

The government-backed lender is part of a working group studying the feasibility of a new credit-assessment company before the next Brics summit due in October.

The biggest hurdle for a Brics credit-assessment company would be convincing US and European investors the ratings are assigned without government pressure. Critics of S&P, Fitch and Moody's say they are beholden to the companies they rate because their revenue comes from these clients.

"It will take a while for the Brics' credit ratings agency to acquire that sort of credibility," said Rajrishi Singhal, senior fellow for geoeconomics studies at Gateway House. "Investors will be watching very closely how they rate and what are the processes they have undertaken."

UK-based Fitch said the ratings of emerging markets were limited by a reliance on external funding, which often left them with less flexibility to address economic and political volatility.

"Any rating agency must establish a reputation for independence, and the management of conflicts of interest," said Daniel Noonan, a Fitch spokesman.

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