ARC Ratings agency to rate risk of sovereign and corporate debt

By Susanna Moon

Chicago, Jan. 17 - Malaysian Rating Corp. Bhd. announced the launch of ARC Ratings SA, a credit rating agency that will rate sovereign debt, financial institutions, non-financial corporations as well as structured products.

ARC is the result of five credit rating organizations in the continents of Asia, Africa, Europe and Latin America banding together to form a new global rating agency, each with an equal stake in the venture, according to a press release by Malaysian Rating.

The other four founding members are CARE Ratings of India, Global Credit Ratings Co. of South Africa, Sociedade de Avaliacao Estrategica e Risco Lda of Portugal and SR Rating Group of Brazil.

The agency aims to address the need for a new approach to credit rating and analyzing credit default risk, the press release said.

ARC is introducing two rating concepts, according to the release, which are a systemic risk rating that allows for a "holistic" view of emerging risks to be integrated into all credit ratings and a financial stability rating along the entire rating scale to serve as a rating ceiling in jurisdictions.

ARC will also introduce a reconfigured rating scale that does not distinguish between investment grade and non-investment grade, but instead distinguishes between different levels of risk, the release noted. ARC's methodology will be dynamically adapted to keep pace with market needs.

ARC also will put more focus on the credit risk assessments of mid-sized issuers, the release noted.

The credit rating and credit risk-related businesses of ARC's founding partners generate about $50 million of combined revenues annually.

More on ARC

ARC was formerly known as Companhia Portuguesa de Rating, a company established 25 years ago in Portugal. The name change took place in October 2013 to reflect the new identity and transformation into a global rating agency, the release noted.

ARC is registered with the European Securities and Markets Authority (ESMA) and operates under its regulatory authority.

ARC "aims to rebuild trust and enhance reliability and transparency in the international credit rating industry, which has suffered an immense loss of credibility in the wake of the global financial crisis," according to the press release.

"The world has changed dramatically since the collapse of the U.S. sub-prime debt market in 2008 which triggered the credit crunch. ARC and its five founding partners believe that the old methods and approaches are no longer sufficient for the post-Lehman financial sector landscape," Uwe Bott, ARC Ratings' chief ratings officer, said in the release.

"A large part of the current methodologies is insufficient in capturing new information elements which will change the way risk is being evaluated. Our approach adapts to a dynamically changing global environment, which requires constant reinvention of credit assessment."

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