Guide to Credit Rating

What do ICRA Nepal Rating Conveys?
ICRA Nepal’s credit ratings are symbolic representations of its current opinion on the relative credit risks associated with the rated debt obligations/issues. These ratings are assigned on a Nepalese (that is, national or local) credit rating scale for Rupee (local currency) denominated debt obligations. ICRA Nepal ratings may be understood as relative rankings of credit risk within Nepal. ICRA Nepal ratings are not designed to enable any rating comparison among instruments across countries; rather these address the relative credit risks within Nepal.
Mapping of ICRA Nepal's Long-Term and Short-Term Ratings

Short-Term Ratings
ICRA Nepal assigns short-term Ratings with symbols from [ICRANP]A1 through to [ICRANP]A5 to debt instruments with original maturity up to one year. ICRA Nepal’s short-term Ratings measure the probability of default on the Rated debt securities over their entire tenure. For the short-term Ratings modifiers {"+" (plus)} can be used with the Rating symbols for the categories ICRANP]A1 to ICRANP]A4. The modifier reflects the comparative standing within the category. While the short-term Rating of ICRANP]A1 indicates that the Instruments with this Rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk, [ICRANP]A5 indicates that the Instruments with this Rating are in default or expected to be in default on maturity. ICRA Nepal assigns short-term Ratings to instruments such as commercial paper, certificates of deposit, short-term debentures, other money market related instruments maturing within one year from the date of issuance and bank loans with contractual maturity of up to one year.

Linkage between Long-term and Short-term Ratings
Although ICRA Nepal Ratings are specific to the Rated instruments, the short-term Ratings in general have a linkage with the assigned or implicit long-term Ratings of the issuers concerned. Besides the fact that short-term instruments like commercial paper are usually on-going programmes, thus warranting a longer-term Rating view, in ICRA Nepal’s opinion, refinancing risk or an issuer’s access to other sources of funding, is also largely influenced by the issuer’s longer-term credit profile.

Thus, apart from focusing on short-term factors like near-term business risk drivers and liquidity position of the issuers, ICRA Nepal also factors in an issuer’s long-term credit profile while assigning short-term Ratings to debt instruments issued by it. The following table presents a broad guidance to the linkage between ICRA Nepal’s short-term and long-term Ratings. The linkage shown is not rigid but only indicative. Significantly, an issuer with a speculative grade long-term credit Rating will in most cases be Rated in the speculative grade in the short-term too.

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