Announced during its annual country risk conference in Paris, Coface has launched its new rating system designed to provide additional analysis of a country's business climate.
The new product is, in part, a reaction to current credit market turmoil and to the question of how resilient emerging markets are to the economic slowdown.
The 'business climate' rating aims to go beyond the usual methods of assessing country risk, such as considering the country’s liquidity and solvency. Coface has previously determining country ratings through a mixture of macro-financial and macro-political analysis as well as judging the payment track records of companies.
However, the new rating will take into consideration the wider business climate. For instance, it addresses the question of whether a country’s company accounts accurately reflect their actual financial situation, and does the country’s legal system provide a means of seeking fair and efficient recourse in the event of payment defaults.
The new rating will use the same scale as Coface’s other country ratings, ranging from A1, representing the least risk, down to a D rating.
In the majority of cases, most countries rated by Coface have the same "business climate "rating as their country rating. However, 26% of the 150 countries rated have a lower "business risk "rating.
For example, Brazil is rated at A4 in both rating systems and Russia is rated B in both categories. However, China has a country rating of A3, but a "business climate "rating of B. Coface decided on this lower rating due to what they judged to be the unreliable nature of Chinese companies accounts, as well as finding that financial information is difficult to obtain and often opaque. Legal protection given to foreign creditors was also found to be limited.
Similarly, India has a country rating of A3, but a business climate rating of A$. The reasons for the decline in rating was particularly put down to the problems with accessing financial information of India’s smaller companies, as well as infrastructure weaknesses and a satisfactory, but not always favourable legal environment for creditors.
Reader Comments