Introduction: PACRA was established in 1994 as a joint venture among IBCA Limited (the international credit rating agency),

International Finance Corporation IFC is a member of the World Bank Group. It finances and provides advice for private sector ventures and projects in developing countries in partnership.affilited with the world bank.and member of un.tied to the World Bank. It would finance private enterprises in developing countries but: (IFC) and the Lahore Stock Exchange. The first credit rating agency in Pakistan, PACRA is widely acknowledged for its professionalism and integrity. To date, PACRA has completed well over a hundred ratings, including major industrial corporates, financial institutions and debt instruments. In addition to local ratings, PACRA has also successfully completed two international rating assignments in collaboration with Fitch. PACRA is geared to provide a full range of credit rating services. This includes the rating of corporate entities and fixed income instruments. The ownership and management structure ofPACRA ensures complete independence from any direct or indirect control of the Government, any private sector business group or financial institution. A rating assigned by the rating committee, which includes senior management of PACRA, reflects PACRA's objectively formed opinion of credit risk. Other rating reviews carried out by PACRA include Financial Strength ratings of modarabas, Mutual Fund ratings and Insurer Financial Strength (IFS) ratings for insurance companies.

Purpose

The primary function of PACRA is to evaluate the capacity and willingness of a corporate entity to honor its debt obligations. PACRA ratings reflect an independent, professional and impartial assessment of the credit risk associated with a particular debt instrument or a corporate entity. By providing a measurement of risk, PACRA's ratings facilitate investors in making prudent investment decisions after determining the acceptable rate of

return at the given risk level. However, regardless of the type of rating, it is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.

Pacra Milestone:

15 June 1994 18 August 1994 09 October 1994 08 November 1994 20 November 1994 15 January 1995 04 February 1995 28-31 May 1995 October 1995 19-29 November 1995 26 December 1995 14 February 1996 14 March 1996 01 August 1996 10 April 1997 25 September 1998 31 August 2001 30 March 2002 06 June 2002

Signing of IFC/IBCA*/LSE Joint Venture Agreement Incorporation of PACRA Establishment of Camp Office Notification of First Rating First Board Meeting IBCA*/PACRA Technical Services Agreement Inauguration of PACRA Office First Training Workshop PACRA's recognition by the Financial Times,London, as a Local Rating Agency Second Training Workshop Notification of 10th Rating Registration of PACRA with CLA PACRA's first international consultancy Operation of Second Floor Premises Notification of 50th Rating Notification of PACRA's 100th rating Notification of PACRA's 150th rating Establishment of PACRA's branch office in Karachi PACRA joined ACRAA as founder member

22 January 2003 20 April 2004 29 April 2004 30 June 2004

Employee Buy-Out PACRA becomes a public limited company PACRA enters into agreement with NESPAK for Real Estate Developers & Projects Grading System Notification of 200th Rating

Entity Rating
Entity rating signifies the level of investment risk and the capacity and/or willingness of an entity to meet its debt obligations to senior unsecured creditors. The risk level is indicated by the long and short term ratings. The benefits of a corporate entity rating are : y y y To serve as a reliable credit risk indicator to banks / NBFIs. To assist depositors in selecting a financial institution given the return offered and the risk profile as measured by credit rating. To provide flexibility to management of such entities to determine the rate of return on debt instruments to be issued in future.

PACRA's Standard Rating Scale & Definitions Long-Term Ratings

AAA: Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA: Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A: High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB: Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in

circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. Speculative Grades: BB: Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B: Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default.

Short-Term Ratings
A1+: Obligations supported by the highest capacity for timely repayment. A1:. Obligations supported by a strong capacity for timely repayment. A2: Obligations supported by a satisfactory capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic, or financial conditions. A3: Obligations supported by an adequate capacity for timely repayment. Such capacity is more susceptible to adverse changes in business, economic, or financial conditions than for obligations in higher categories. B: Obligations for which the capacity for timely repayment is susceptible to adverse changes in business, economic, or financial conditions. C: Obligations for which there is an inadequate capacity to ensure timely repayment. D: Obligations which have a high risk of default or which are currently in default.

Instrument Rating
Instrument rating covers all non-equity instruments including TFCs (long and short term), convertibles, debentures, redeemable certificates. By indicating the risk profile of the instrument, the assigned rating helps the issuer in deciding the terms of the instrument while guiding the potential investors in investment decisions. PACRA's rating process assumes that the return offered on such instruments (expected profit, markup etc.) is in the nature of a fixed obligation. Thus, in the case of TFCs, even though the issuing document refers to the return as expected profit, PACRA, in consonance with the shared perception of the issuer and the investor, treats this as a contractual obligation for purpose of credit rating.

Structured Finance Rating

PACRA also has the expertise to rate debt instruments with features of structured finance. Such instruments may have various credit enhancement features designed for reducing either the investment risk, the default risk or both. Structured Finance ratings focus on evaluating specific cash flows identified for meeting the repayment obligations, and also the security arrangements. PACRA's ratings are contingent on examining all the underlying documentation that gives effect to the proposed features of the instrument. While all ratings follow an interactive process, the degree of interaction between the client and PACRA is considerably more in such ratings than in standard instrument ratings. If required by the client, PACRA would also be prepared to assist the client in achieving the desired objectives. In September 2002, PACRA assigned its first structured finance rating to securitised TFC issue of Paktel Limited amounting PKR 850 million.

Individual & Support Rating

Commercial Banks:
On a selective basis, PACRA shall also assign individual and support ratings to commercial banks. These ratings would then be synthecised to generate standard long and short term ratings. This arrangement is expected to ensure that interested parties would be able to evaluate the reason only in some cases the high long and short term ratings of a bank might not appear consistant with the perceived financial strength of the bank. Rating scales and definitions for support ratings and individual ratings are given below:

Individual and Support Rating Scale

(Applicable to Commercial Banks)

Individual Ratings:
PACRA's individual ratings, attempt to assess how a bank would be viewed if it were entirely independent and could not rely on external support. These ratings are designed to assess a bank's exposure to, appetite for, and management of risk, and thus represent our view on the likelihood that it would run into significant difficulties such that it would require support. The principal factors we analyze to evaluate the bank and determine these ratings include profitability and balance sheet integrity, franchise, management, operating environment, and prospects. Consistency is an important consideration.

A B C D

A very strong bank. Characteristics may include outstanding profitability and balance sheet integrity, franchise, management, operating environment, or prospects. A strong bank. There are no major concerns regarding the bank. Characteristics may include strong profitability and balance sheet integrity, franchise, management, operating environment or prospects. An adequate bank which, however, possesses one or more troublesome aspects. There may be some concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects. A bank which has weaknesses of internal and/or external origin. There are concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects.

A bank with very serious problems which either requires or is likely to require external support. Note:In addition, we use gradations among these five ratings, i.e. A/B, B/C, C/D, and D/E.

Support Ratings:
The Support Ratings do not assess the quality of a bank. Rather, they are PACRA 's assessment of whether the bank would receive support should this be necessary. We emphasize that these ratings constitute PACRA 's opinions, although we may discuss the principles underlying them with the supervisory authorities for their comment or endorsement.

A bank for which there is a clear legal guarantee on the part of the state OR a bank of such importance both internationally and domestically that, in our opinion, support from the state would be forthcoming, if necessary. The state in question must clearly be prepared and able to support its principal banks. A bank for which, in our opinion, state support would be forthcoming, even in the absence of a legal guarantee. This could be, for example, because of the bank's importance to the economy or its historic relationship with the authorities. A bank or bank holding company which has institutional owners of sufficient reputation and possessing such resources that, in our opinion, support would be forthcoming, if necessary. A bank for which support is likely but not certain. A bank, or bank holding company, for which support, although possible, cannot be relied upon.

3 4 5

A 2, 3, 4, or 5 Support rating may be qualified by the suffix "T". This indicates significant existing or potential transfer risk of economic and/or political origin which might prevent support for foreign currency creditors.

Insurer Financial Strength Rating for Insurance Companies

The insurer financial strength (IFS) rating represents an opinion of an issuers financial strength and business continuity from a policy holder's prospective. The rating provides no guarantee against default but offers a well researched opinion as to the likelihood of the issuer to fail to meet its policy holders' obligations.

PACRA's Insurer Financial Strength Rating Scale & Definitions

AAA Exceptionally Strong. Insurers assigned this highest rating are viewed a possessing exceptionally strong capacity to meet policyholder and contract obligations. For such companies, risk factors are minimal and the impact o any adverse business and economic factors is expected to be extremely sma Very Strong. Insurers are viewed as possessing very strong capacity to m policyholder and contract obligations. Risk factors are modest, and the imp of any adverse business and economic factors is expected to be very small. Strong. Insurers are viewed as possessing strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be sma Good. Insurers are viewed as possessing good capacity to meet policyhold and contract obligations. Risk factors are somewhat high, and the impact o any adverse business and economic factors is expected to be material, yet manageable. Moderately Weak. Insurers are viewed as moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though positive factors are present, overall risk factors are high, and the impact of adverse business and economic factors is expected to be significant. Weak. Insurers are viewed as weak with a poor capacity to meet policyhol and contract obligations. Risk factors are very high, and the impact of any adverse business and economic factors is expected to be very significant. Very Weak. Insurers rated in any of these three categories are viewed as v weak with a very poor capacity to meet policyholder and contract obligatio Risk factors are extremely high, and the impact of any adverse business an

AA

BBB

BB

CCCC,CC,C

economic factors is expected to be insurmountable. A 'CC' rating indicates that some form of insolvency or liquidity impairment appears probable. A 'C' rating signals that insolvency or a liquidity impairment appears imminent. DDDDDD,DD,D Very Weak. These ratings are assigned to insurers that have either failed to make payments on their obligations in a timely manner, are deemed to be insolvent, or have been subjected to some form of regulatory intervention. Within the DDD-D range, those companies rated 'DDD' have the highest prospects for resumption of business operations or, if liquidated or wound down, of having a vast majority of their obligations to policyholders and contractholders ultimately paid off, though on a delayed basis (with recoveries expected in the range of 90-100%). Those rated 'DD' show a much lower likelihood of ultimately paying off material amounts of their obligations in a liquidation or wind down scenario (in a range of 50-90%). Those rated 'D' are ultimately expected to have very limited liquid assets available to fund obligations, and therefore any ultimate payoffs would be quite modest (at under 50%).

Fund Rating
(Rating Methodology, Scale & Definitions)

Introduction Mutual fund industry in Pakistan is showing impressive growth. Its acceptance as a useful tool to deploy funds is on rise amongst both individual and corporate investors. However, at the same time, the increasing number of asset managers as well as funds has necessitated the need of an independent opinion on their performance. PACRA follows a comprehensive approach to rate the two distinct ingredients of the mutual fund industry asset managers and funds. These two are rated on separate scales. The asset manager rating seeks to determine the professional capacity of asset managers and the fund rating focuses on relative actual recorded performance of a mutual fund. Process Overview Every mutual fund investor has a distinct set of investment objectives and preferences. They all usually have unique risk-return perception and investment horizons that make it difficult to capture these preferences in a single yardstick for guiding investment decisions. PACRA Mutual Fund Rating (commonly referred to as Star Rating) attempts to address this investor need. The star rating provides an initial screening criterion to investors. The rating is a purely quantitative measure, avoiding any biases. It is based on historical returns of a fund relative to other funds in similar category. PACRA has defined different fund categories each having distinct characteristics and ratings of funds in a particular category are comparable. The rating methodology is designed in a manner that the star rating of a fund conveys a sense of how skillfully the fund has been managed; that is, the relative star ratings of two

funds in a category should be affected more by manager skill than by market circumstances or events that lie beyond the fund managers control. PACRAs mutual fund rating, therefore, provides a useful yardstick to existing and potential investors and facilitates their investment decisions. PACRA will assign two types of Star ratings i.e. a star rating based on funds performance during the trailing 12 months, and a long-term star rating based on funds performance during the trailing 36-months. Defining a Category Fund categories define groups of funds whose constituents are similar in their risk factor exposures so that return comparisons are meaningful. Moreover, the observed return differences among funds relate primarily to security selection, or to variation in the timing and amount of exposure to different elements affecting the category. Each of these, over time, may be presumed to exercise a skill-related effect. The following considerations apply while assigning a fund to a particular category: y y y Funds are grouped by the type of investments that dominate their portfolios. In general, funds in the same category can be considered reasonable substitutes for the purposes of portfolio construction. Category membership of a fund is based on long-term portfolio composition philosophy for the fund as disclosed by its asset manager.

PACRA, after a detailed evaluation of mutual funds in Pakistan, has identified the following categories: 1. Equity Fund Closed End: A closed-end fund that at least invests around 50% of its net assets in equities at all times. 2. Equity Fund Open End: An open-end fund that at least invests around 50% of its net assets in equities at all times. 3. Balanced Fund: A fund that carries a mix of interest-based and equity securities and at least invests around 30% of its net assets in equities at all times. 4. Income Fund: A fund that invests in interest-based instruments / securities and weighted average maturity of its assets is more than 90 days at all times. 5. Money-Market Fund: A fund that invests in money market and other short-term interest based instruments / securities including spread transactions. The weighted average maturity of its assets is less than 90 days at all times. 6. Fund of Funds: A fund that mainly invests in other funds with such investments forming at least around 50% of its net assets at all times. 7. Asset Allocation Fund: A fund that can invest in any class of asset in any proportion according to criteria set in its offering document. 8. Islamic Fund: A fund that invests in shariah compliant instruments only. The category of a particular fund will be established on the basis of the offering document of the fund and publicly disclosed information about its portfolio composition. The definition of a particular category can be narrowed down to generate a new category and, similarly, a new fund category can also be designed if a new class of assets is identified and is not covered by any of above categories. However, a category would only be created if there are at least two such funds being operated by two different asset managers to be

included in that new category. Measuring Performance PACRA considers both absolute and risk-adjusted performance. Absolute return refers to the appreciation or depreciation that a fund has achieved over a period of time and effectively this is what an investor takes home at the end. However, at the same time, the level of risk (extent of variability) that is involved with those returns is also important. Risk-adjusted return shows the trade-off investors make between risk and return. Since star rating is a combination of both risk and return it is likely to provide investors a better measure to gauge historical performance of different funds.

Return PACRA calculates a funds return for a given quarter as follows:

Where

R PE PB

= = =

Total return for the month End of month NAV (net assets value) per share/certificate Beginning of month NAV per share/certificate Adjustments on account of cash dividend, bonus issue and addition to

A = capital. Risk

PACRA uses Sharpe Ratio a technique developed by Nobel prize winning economist William Sharpe to measure a funds risk adjusted return. Mathematically, Sharpe Ratio is the return generated per unit of risk. The ratio is calculated as follows:

Where AR = Average monthly return for the trailing 12 monthly periods (as explained above) SD = Standard deviation of the monthly returns of the fund. SD is computed using the returns for trailing 12 monthly periods. PACRA calculates an overall quantitative score by combining these two equally weighted measures of historical performance. The star rating of a fund is then assigned according to the following distribution:

Other elements considered while calculating a score are as follows: y The ratings are calculated on the basis of performance during a particular year. However, in case of long-term star rating the performance during the trailing 36 months is considered. Only those funds are eligible for rating that have remained operational throughout the given period (i.e. one year for star rating and 3 years for long-term star rating). A month is used as a reference period to calculate performance. Funds are rated using performance in 12 months (36 months for long-term star rating) and geometric mean of returns and sharpe ratio over this period are used to calculate the final score. In case of income and money market funds, the score of return would have 50% weightage, the score of risk as calculated using Sharpe ratio would have 25% weightage and the balance 25% weightage is assigned to the credit quality of the assets of the fund.

y y y

Asset Manager Ratings

(Rating Methodology, Scale & Definitions)

Introduction To help investors better understand asset management structures, PACRA has developed a rating methodology intended specifically to provide clear indicators of their capabilities. The agency has selected criteria to measure an asset managers qualifications and prospective capabilities and to address the explicit concerns and interests of investors. The agencys multi-criteria approach provides for the aggregation of the rating factors into five distinct groupings to present a clear profile of an organizations strengths and weaknesses. To achieve these objectives, PACRA has designed a rating process based on the five following qualitative attributes. y y y y y Business structure; Independence and controls; Communication; Investment; Risk management.

PACRAs rating methodology represents a systematic framework to assess the quality of the financial condition, organization, business processes, staffing, systems and controls employed by asset managers. PACRAs Asset Manager ratings are announced through press releases and followed by entity reports published on the agencys website, www.pacra.com Each profiles the rated organization its staff, operations, product range and investment philosophy and summarizes PACRAs assessment of its capabilities. Process Overview PACRAs Asset Manager rating review process is designed to systematically capture the required information, consistently apply criteria and uniformly disclose the agencys ratings rationale. The process incorporates five stages, as listed below. Pre-Review y Review and assessment of requested documentation and information.

On Site Review y y Meeting with the management. Review of the infrastructures, financial condition, processes, staffing, systems, and front-, middle and back-office operations.

Analysis y y Final evaluation of all documentation Completion of internal assessment

Rating Committee validation Ratings Assignment y y Press release announcing the rating Report published

Surveillance y y y Ongoing surveillance Quarterly review of rating Annual formal meeting and rating review

Prior to the scheduled review, the asset manager is required to respond to a questionnaire designed to capture organizational, operational, portfolio and personnel related information, along with supplying supporting documentation. This information is reviewed to create an agenda for the on-site review. The on-site review typically consists of meeting with the CEO, Managing Directors and key staff in the different departments (Fund Management, Research, Sales, Middle-Office, BackOffice, Reporting, Audit, Risk Control, etc). The review serves to strengthen PACRAs understanding of the organizations investment management processes and controls. In addition, the agency will be given system demonstrations. A PACRA Rating Committee comprising top management and the lead analyst validates the analysis and rating rationale. Upon committee approval, the rating is issued. All Asset Manager ratings are valid for one year from the date of issuance, during which time PACRA continues to monitor the organizations characteristics and evolution through surveillance and quarterly updates. Rating Criteria PACRA recognizes that, due to differences between asset management organizations in terms of size, geographic coverage, operating strategy and assets under management, the application of the rating criteria requires careful consideration of the context in which they are applied. For example, larger organizations typically have more formalized processes and controls. However, smaller organizations can be judged to have similar, or stronger, processes and controls if they can demonstrate that the necessary elements are in place to achieve the required objective, albeit in a less bureaucratic manner. The following subsections describe the areas of focus for PACRA within each grouping of rating factors. Business Structure Viability: The analysis of a business structure begins with the examination of the reference shareholder. PACRA assesses both the financial strength and regulatory authorities recognition of this shareholder and its commitment to asset management, as well as the relative importance of this business line to its activities. When available, the credit rating is used to assess the parent companys financial condition.

In a service industry such as asset management, the franchise of a company is of paramount importance, though hard to evaluate. In its analysis, PACRA considers market share, ability to manage various asset classes, and business development. Strategic risks are also assessed, should they stem from mergers, restructuring or potentially risky strategic decisions. Asset managers also face risks in the daily running and development of the business. Senior management, financial controls and corporate governance are thus carefully examined. PACRA looks at profit sustainability. Several aspects of the companys income statement are considered: revenue and expense trends, income volatility, concentrations by client and product. Stability is also analyzed in terms of balance sheet, to which end, PACRA calculates equity to AUM (Assets under management) and overheads, taking the regulatory requirements as the minimum acceptable criteria. Scope of Activities: Analysis of Assets Under Management (AUM) and the client base is central to the process, the aim being to assess ability to work with clients and to provide asset management services suited to the needs of its target clients and their selected investment products. Recent growth in institutional AUM, the split between single-investor and collective funds, and client reputation form the main criteria incorporated in PACRAs assessment. Business Management: Optimum portfolio management requires adequate and sufficient resources (human, technological), whether internal, provided by the parent company or affiliate, and/or an external third party (e.g. vendors). Most critical in terms of IT resources are unquestionably the portfolio management and order management systems. Various features of the portfolio management system are explored; robustness, coverage of instruments, time delay before transactions are entered, timely and accurate portfolio pricing and ability to monitor value added indicators and order simulation. PACRA assesses the quality and reliability of the order management process in terms of systems and procedures to ensure the secure, timely and fair handling of multiple transactions. Electronic order and confirmation also clearly adds value and security, notably when trading is brisk. The integration of custodians and fund administrators within the systems is also cautioned. Asset management relies heavily on human expertise. The experience, turnover and ease of replacement of portfolio managers and client relationship managers are of particular importance to ensure consistency and continuity. Any use of temporary staff is also explored. Independence and Controls Independence: PACRA determines the asset managers relative independence from its reference shareholder. Only unequivocal independence is likely to prevent any conflict of interest in advising or working for a client. Asset managers should avoid conflicts of interest to guarantee fair treatment for all customers and ensure their interests are placed above all else. To determine the degree to which the asset manger guards against such potential conflicts of interest, PACRA examines the quality of the firewalls, procedural protections, and compliance monitoring practices. PACRA examines the reference shareholders operational independence, both in terms of resources (control, marketing and sales teams) and intermediation. The relative size of the

inflows arising from a parent group or reference shareholder is also a good indicator. Controls: A true risk management and monitoring culture and platform are the hallmark of seasoned and mature asset management organization. Therefore, PACRA assesses the various resources employed to identify, manage and mitigate various risks (market, credit and operational), specifically resources in terms of staff, procedures, IT systems and, as importantly, senior management. In this way and beyond mere facts, PACRA measures the efficacy of the risk management systems. Full risk mapping with in-depth coverage and highly experienced risk management resources are among the differentiating factors. In addition, PACRA evaluates capacity to promote ethics and monitor enforcement thereof. PACRA also assesses the resources, procedures, control points and reporting lines to manage conflicts of interest, and the exercise of fiduciary responsibility. Key issues here are trading activities for the parent account and client accounts, policy regarding securities related to the group or reference shareholder, which is expected to be formalized, monitored and communicated to clients. Communication Products and Services: Examining client relationships focuses on the asset managers ability to manage relations through determination of investment objectives and a thorough understanding of constraints, and then to day-to-day relationships. PACRA evaluates the asset managers capacity to provide appropriate responses tailored to client requests, as well as keeping abreast of local regulations. Criteria are, inter alia, staffing, technical knowledge of sales people, systems such as Client Relationship Management (CRM tool) or intranet, and access to information e.g. reporting. Financial modeling and asset/liability management often play an important role and aid the quality of services provided. Reporting: Much of the information provided to investors is communicated through regular reporting, which PACRA examines in light of its comprehensiveness, clarity, consistency, accuracy and timing. This capacity to adapt reports to meet varied investors requirements is also examined. Beyond mere reporting, PACRA believes that all asset managers should offer performance presentations and performance attribution reports to their clients on a widespread and timely basis. The agency, therefore, looks at accuracy of performance attribution and consistency with the investment process. PACRA reviews the resources and the procedures used in the production of reports, particularly with respect to front-office independence and to data accuracy. Investment Investment Process: The complex nature of financial markets requires asset managers to have clearly-defined and solid investment processes and the ability to demonstrate consistency in implementation while maximizing performance and meeting various constraints. Within this framework, PACRA specifically focuses on clarity of investment styles, adherence to stated investment strategies, presentations and pertinence of the various steps of the process (meetings, investment committees, quantitative optimization or modeling, etc.), documentation of decisions (reports, minutes of committees, etc.) and consistency.

Measurement of Efficiency: PACRA focuses on ability to identify and quantify value added sources through performance attribution or other profit and loss analysis. The agency looks at IT and staff available; equity and credit research, the macroeconomics team, strategists, quantitative analysts, etc. Inputs are also expected to be recorded and minuted. Over the long run, poor performances lead to a poor reputation; poor reputation leads to outflows; and outflows lead to deterioration in profitability and ultimately in the standing of the asset manager. Therefore, PACRA believes that an asset managers overall track record, rather than simply within its flagship portfolio, should be thoroughly assessed on a riskadjusted basis. PACRA compares this performance to the relevant benchmarks and peer groups. Investment Constraints and Risk Indicators: Investment risk management is given high priority. PACRA determines whether the asset manager has a strong risk indicator policy and checks its ability to adhere to explicit client guidelines. Specifically, PACRA reviews which risk indicators are selected, the capacity of the portfolio managers to monitor them, the limits set by management and the independence of controls. Portfolio managers independence in making decisions is also considered, taking into account limits, monitoring and controls. Reconciliation between expected and actual risk levels is equally important and requires regular comparisons, analysis of discrepancies and correction. Trading: PACRA appraises an asset managers dealing activities by looking at whether the procedures ensure best execution, taking into account fair order allocation, speed of execution and cost minimization. When asset returns are low, PACRA recognizes the importance of low transactions costs to profitability. When applying the related criteria, PACRA carefully takes into account the specificities of the various financial markets in which the asset manager is active. Risk Management Internal Controls: PACRA assesses the level of internal controls within various systems employed. This includes scrupulous selection processes for vendor software, comprehensive validations of internal development and regular reviews of existing decision-making tools. PACRA considers system documentation, frequency of updates and availability to the relevant groups within the organization. The agency also reviews business interruption plans, assessing availability of a fully functional emergency site and frequency of back-ups of key systems and data and regular disaster recovery testing. Order flow is critical and should be closely monitored and controlled. PACRA monitors compliance with the authorized intermediary list, fair dealing and best execution (price and timeliness). PACRA also evaluates controls associated with the level of trading, transfers between portfolios as well as amended, cancelled and intra-day transactions. Compliance with Investment Constraints: Within risk management, compliance with regulatory constraints and client guidelines is a particular focus. Procedures to correct breaches are also observed, with particular attention paid to formalization and implementation across the various teams involved, and the time taken for corrective action. Follow-up of Market Risk: Risk can arise from peripheral instruments in investment

management. In this respect, PACRA looks for clear-cut policies and adequate daily monitoring (e.g. tools, risk controls, reconciliation procedures. etc.). Finally, PACRAs analysis of the asset managers risk management also includes a review of capacity to monitor risk in aggregate (market, credit or liquidity) across all portfolios. This relies on limits and adequate controls. Critical Elements of PACRAs Analysis To summarize, PACRAs rating review process covers: y y y y y y History, including management experience, business strategy, market position and level of profitability on a long-term basis. Companys capitalization with financial resources and ownership; Level of independence from the reference shareholder and focus on corporate governance; Client relationship management; accuracy and transparency in all disclosures and reporting; Investment management and related processes supported by strong, extensive research and analysis; Organization, processes and procedures with respect to risk management and control at both first and second levels, as reflected in the following areas; market and operational risk monitoring, investment compliance, service provider controls; The experience of management and teams with staff turnover rates; and Integration and flexibility of systems providing support throughout the organization including risk management.

y y

PACRA issues AM ratings to provide investors with an independent and professional assessment of an asset managers capabilities. The ratings are on a scale of AM1 to AM5, with AM1 being the highest. + or - may be appended to a rating to denote relative status within major rating categories bar the AM1 and AM5 rating categories. Rating Scale and Definitions

Real Estate Developers & Projects Grading/Rating

Methodology, Scale & Definitions

The Concept:
The real estate sector has recently assumed considerable importance in Pakistan with the expectation that this could soon emerge as the critical catalyst for stimulating investment and industrial activity in the country. A number of factors including the high cost of inputs, declining productivity, reduced competitiveness of local industry in the post-WTO setting has discouraged industrial investment in the country. While the financial sector is sitting on a huge pile of funds and the borrowing cost has declined to historical lows, borrowers are few and far between. Under the circumstances, financing of housing projects offers promising prospects. Again, from the perspective of potential house owners, the financing option has become feasible only with the sharp decline in borrowing costs. The tax concessions in the recent budget have provided further incentives to finance house ownership through borrowing. Thus, all the necessary - and sufficient - conditions are in place for stimulating activity in the sector. However, there is one important factor which could discourage both lenders and investors (home owners). This concerns the credibility of developers and the reliability of completing housing projects on time and without cost overruns. This factor assumes greater significance in the backdrop of a number of scams in the recent past relating to property development and housing schemes. What could provide a degree of comfort to lenders and investors? In India, a mechanism which is being increasingly relied upon is the grading or rating of real estate developers and projects by recognized credit rating agencies. The real estate sector has traditionally been associated with inadequate information and lack of agreed standards. The PACRA grading, which will be an independent opinion on the relative performance capability of the relevant real estate entity, aims to serve as a tool for identifying and managing risks associated with the concerned entity. Besides benefiting the sector participants and end users (investors/customers), the grading is designed to provide objective opinions as inputs in the pricing and credit decisions of banks/financial institutions. The grading will not be a recommendation to lend/do business with or not to lend/not to do business with a certain entity/project.

The Benefits:
The grading of the real estate developers is designed to make investors (end user/buyer of property) aware of the developer's relative capacity to deliver as per specified terms and quality parameters and transfer of ownership on time. The grading is also expected to facilitate the overall growth of the real estate sector by providing developers with incentives to conform to fair trade practices and legal requirements. A scientifically graded project would lend itself to a more accurate and reliable estimation of risks associated with the real estate project/project promoter. This is expected to enhance the confidence of the end users and provide comfort to lenders of these projects, thereby facilitating the flow of institutional funds to the project/project owner.

The Grade Assessment Process:

The assessment process for the real estate developer or the real estate project commences at the request of the respective entity. Once the mandate letter is received, PACRA require, inter-alia, the developer's financial statements, organisational structure and project experience. On receipt of the information, a team of analysts takes up the task of preparing a report on that entity, highlighting its business and financial risks. During this process, support is drawn from the in-house research and database of PACRA. The report prepared by the analysts is presented to the Grading Committee for assessing the entity. The whole process is highly interactive and includes inputs from sector specialists, if and when required. PACRA will ensure strict confidentiality of all information collected during the assessment process. The methodology and definitions of the proposed rating/grading system are attached.

Methodology:
The Developer and the Real Estate Project are graded under two broad risk categories - business risk and financial risk. Indicative criteria, inter-alia, include: Criteria to Assess Developers Business Risk Determinants: Sector specific risk: Overview of the state of the economy and its near and medium term prospects. Sectoral presence of the developer/builder enterprise and revenue generation capacity. Market Position: The position of the developer vis--vis other players and the developer's general reputation in the market. Project Composition: Project mix in terms of the number and value of projects in hand. Adherence to project time schedules: Present state of all the projects undertaken by the developer and the extent of adherence to milestones indicates the chances of any time overruns. Project Quality track record: The quality of the completed projects has a vital bearing on the developer's business risk. The quality consciousness of the developer refers to the quality procedures adopted at the various project sites, material procurement and inspection systems adopted by the developer. Project Management and Systems for timely completion: The internal planning and project management systems adopted, extent of review meetings at the on going project sites, nature of construction agencies deployed and construction techniques adopted can significantly affect the progress at the worksites. Management Quality: Organisation structure, commitment of the management, management policies and human resources deployed. Extent of legal compliance and documentation: Conformity with building byelaws and regulations and trade practices followed. Extent of documentation also has an important bearing. Contract Composition: Indicates the nature of contracts entered into by the developer with the construction agencies which influences the risk sharing in case of any delay or deviation. Past projects track record: Track record of the developer in terms of quality, timely completion and transfer of ownership to the customers. Dispute and litigation track record: Nature and extent of litigation against the developer by government/semi government/public sector agencies and the general public. Customer satisfaction: Extent of satisfaction of the customers/investors and redressal of grievances of the purchaser/investor; specifically, the system and timeliness of handling queries and complaints. Financial Risk Determinants:

 Profitability: Important indicator of developer's financial strength. Leverage: Developers that are highly leveraged face bigger problems during economic downturns. Financial Flexibility: Financial flexibility refers to the company's ability to arrange funds in case of a liquidity crunch and erratic cash inflows. Working Capital Management: Control of receivables and advances from customers and working capital management thereby requiring less interest-bearing working capital support from external sources. Insurance Cover: Insurance cover taken by the developer for its various projects reduces the risk in case of any contingencies. Accounting Quality: Includes accounting practices and standards followed. Contingent Liability: Any contingent liability that may significantly affect the risk profile of the developer. Criteria to assess Real Estate Project Risks includes an analysis of the following factors:

 Completion risk: This is the risk that the project may not be completed in time or at all due to faulty planning, cost overruns, wrong choice of construction agencies. Price risk: Price quoted should be reasonable and any risk of volatile prices due to supply-demand factors increases the price risk. Resource risk: The risk includes the non-availability or a possibility of an adverse price movement in construction inputs. Quality and non-conformance risk: This is the risk of non-conformance of laid down quality standards for construction processes and raw materials. Policy risk: This risk relates to consistency in government policies that could have a material impact on the project. Project development risk: This is a risk that the project development may not take place in an orderly manner if the agreement between the landowner and developer contains certain ambiguities. Permission Risk: This is the risk that official clearances like approved building plans, licences from competent authorities may not be forthcoming or subject to expensive conditions. Interest Rate Risk: This is the risk that the floating interest rate of the project, if any, would increase beyond the levels assumed for preparing projected cash flows. Insolvency Risk: This is the risk of insolvency of the Developer. Site Risk: This is the risk that the project site might have legal encumbrances. Transfer of ownership risk: This is the risk that the ownership title may not be transferred effectively. Penalty clause: Presence of a penalty clause in case of delay in handing over possession in time can act as a source of comfort to the investor. In addition to the project specific risks the past track record of the developer and its financial position have an important bearing on the grading of the project.

PACRA grading symbols for Real Estate Developers and their implications are as follows: PE1 Very strong project execution capacity. The prospects of execution of real estate projects as per plan are the most promising and the ability to transfer ownership as per terms is highest. Strong project execution capacity. The prospects of execution of real estate projects as per plan and the ability to transfer ownership as per terms are highly promising but less than under PE1. Moderate project execution capacity. The prospects of execution of real estate projects as per plan and the ability to transfer ownership as per terms are good. Project execution capacity can be affected moderately by changes in the real estate sector prospects.

PE2

PE3

PE4

Inadequate project execution capacity. The prospects of execution of real estate

projects as per plan and the ability to transfer ownership as per terms do not provide adequate comfort. Project execution capacity can be affected severely by changes in real estate sector prospects. PE5 Weak project execution capacity. The prospects of execution of real estate projects as per plan and the ability to transfer ownership as per terms are poor.

NOTE: A plus (+) or minus (-) may be appended to a grade to denote relative status within grading categories from PE2 to PE4. PACRA grading symbols for the Real Estate Project and their implications are as follows: EP1 Very strong project. The prospects of successful implementation of the real estate project and transfer of ownership as per terms are highest. The project risk factors are lowest.

EP2

Strong project. The prospects of successful implementation of the real estate project and transfer of ownership as per terms are high. The project risk factors are low.

EP3

Moderate project. The prospects of successful implementation of the real estate project and transfer of ownership as per terms are moderate. The project risk factors are moderate.

EP4

Inadequate project. The prospects of successful implementation of the real estate project and transfer of ownership as per terms are inadequate. The project risk factors are high.

EP5

Weak project. The prospects of successful implementation of the real estate project and transfer of ownership as per terms are poor. The project risk factors are highest.

NOTE: A plus (+) or minus (-) may be appended to a grade to denote relative status within grading categories from EP2 to EP4.

Chapter III

Rating Elements
PACRA's process of due diligence covers a detailed evaluation of a number of key variables. These are discussed respectively
Industry risk is measured by the strength of the industry within the economy and relative to economic trends, both locally as well as internationally. This also includes the ease or difficulty of entering the industry, the diversity of earning base and role of regulation and legislation. The specific issues include: y y y y y y y y y y y y y Economic importance of the industry to the country. Potential for support. Employment significance. Industrial relations record. Significance of legislation: protective and harmful, relationship with government. Maturity of the industry. International competition. Barriers to entry. Competitive situation domestically: monopoly, oligopoly, fragmentation. Nature of the industry: capital intensity, product lifespan, marketing requirements. Cyclic factors: demand, supply, implications for price volatility. Industry cost and revenue structure: susceptibility to energy prices, interest rate levels, government policies. Important developments and trends in the industry.

II. Market Position

Market position covers the companys market share in its major activities and the historical protection of its position and projected ability for the future. It also covers the companys historical operating margins and its ability to maintain and improve them. The specific issues include: y y y y y y y y y Competitive position within the industry: size, market share & trend, price-setting ability. Major product importance. Product lives and competition. Degree of product diversification. Significance of R&D expenditure and of new product development. Geographic diversity of sales and production. Significance of major customers. Dependence on major suppliers and access to alternatives. Marketing needs.

Distribution network, control and susceptibility to external factors

III. Ownership And Support

The ownership structure of the company, financial strength of the owners, potential for support and other tangible benefits are covered in this area. The specific issues include: y y y y y y y Ownership of the entity. Relationship with owners, autonomy, control. Financial strength of owner (s). Potential for support or for funds withdrawals. Structure of ownership. Other benefits: access to technology, products. Access to capital markets.

IV. Earnings & Performance

The key variables indicating the basic long term earning power of the company are analyzed. Additionally, consistency and trend of core earnings, earnings mix and capacity for internal growth are also covered. The specific issues include: y y y y y y y y y y y Consistency and trend of core earnings. Earnings mix by activity and geography. Exceptional and extraordinary items: non-recurring impacts on past earnings levels. True earnings levels available for cash flow: equity accounting, restrictions on profit repatriation. Internal growth versus acquired earnings. Profitability and protection measures. Profit margins. Interest & pre-tax coverage measures. Dividend cover, payment levels and future policy. Taxation situation: effective tax rate, specific reliefs, unutilized losses. Sufficiency of retained earnings to finance growth internally.

V. Cash Flow

Relationship of cash flow to leverage and ability to internally meet all cash requirements is evaluated. The volatility of cash flow over time and the impact of seasonality on cash flow is also assessed. The specific issues include : y y y y y y y y Adequacy of cash flow to maintain the operating capacity of the business: working capital levels, replacement of fixed assets. Contribution from cash flow towards expansion: major capital spending projects, acquisitions. Discretionary spending included in cash flow including advertising, exploration, research & development expenditure. Volatility of cash flow over time. Relationship between cash flow and total debt. Restrictions on cash flow : limits on repatriation, potential taxation effects, access to dividends from subsidiaries. Liquidity levels and fluctuations: seasonality, sensitivities. Working capital management and measurements.

VI. Management Evaluation

Management evaluation covers the record to date in operations and financial terms, corporate goals, attitude to risk, control systems, experience and record compared to peers. The specific issues include: y y y y y Record to date in financial terms. Corporate goals and outlook: aggressive stance, attitude to risk. Experience, background, credibility. Depth of management: key individuals, succession. Record compared with pee

VII. Capital And Debt Structure

The historical, present and projected gearing and leverage levels are analyzed. Sensitivity analysis is also carried out by varying critical assumptions for determining the cushion available for meeting future obligations in the event of adverse changes in business conditions. The specific issues include : y y y Gearing (debt/equity) measures: historic, present and projected. Leverage (total liabilities/equity) measures: historic, present and projected. Sensitivity analysis on projected levels.

y y y y y y

Seasonal variations in measures: core debt levels. Coverage measures on interest & leasing costs. Necessary adjustments to measure for off-balance sheet items: leased plant/buildings, nonconsolidated subsidiaries, guaranteed associates or joint ventures. Appropriateness of capital structure for the business: over-reliance on short term funding, sensitivity to interest rate changes. Nature of underlying assets: ability to realize without loss, attraction to buyers in a forced sale, valuation methods and potential for moderation of gearing/leverage measures. Debt structure : type, maturity, currency, service schedule, covenants, security, default clauses.

VIII. Funding And Flexibility

This area covers an evaluation of the companys financing needs, plans and alternatives and its flexibility to accomplish its financing program under stress without impairing creditworthiness. The specific issues include : y y y y y y y y Flexibility of planned financial needs : capital spending, dividend levels, acquisitions. Ability to raise additional financing under duress. Back-up and standby lines of credit : periods and covenants of underwriting facilities and committed lines, bank relationships generally. Ability to attract capital : shareholder make-up, access to equity markets. Capital commitments. Margin of safety in present and planned gearing/leverage levels. Asset make-up : nature of assets and potential for reductions or disposals under stress, scalable units. Off-balance sheet assets and liabilities : goodwill or other intangibles written off, undervalued assets, pension under funding

IX. Corporate Governance

In assessing corporate governance, PACRA analyses governance data and information systematically, and also performs more contextual, qualitative reviews of an individual company's governance practices. The specific issues include:
y y y y y y

The independence and effectiveness of the board of directors Oversight of related party transactions that may lead to conflicts of interest Board oversight of the audit function Executive and director remuneration Complex holding company structures Ownership by private individuals and families

PACRA also examines other aspects of corporate governance whose impact on bondholders is less clear cut; these include equity ownership by executives and directors

X. Additional Factors For Financial Institutions

In the case of credit rating of financial institutions, some additional key factors are: y y y y y y y Quality of the asset portfolio Stability of earning Sources and cost of funds Asset / liability structure Capital adequacy and liquidity Market environment and strategy Prospects

Ratings:

Sr. No. Name Of Organization -

Type of Rating

Date of Dessemination (dd/mm/yy)

Rating Assigned
STABILITY RATING

FUND STABILITY RATING

1.

Alfalah GHP Cash Fund

2. Alfalah GHP Income Multiplier Fund 3. Askari Sovereign Cash Fund 4. Askari Islamic Income Fund 5. Atlas Income Fund

6. Atlas Islamic Income Fund 7. Atlas Money Market Fund

8. First Habib Income Fund 9. IGI Aggressive Income Fund 10. IGI Islamic Income Fund 11. JS Income Fund 12. KASB Islamic Income Fund

Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating Fund Stability Rating

10-Jan-11 10-Jan-11 02-Feb-11 02-Feb-11 28-Dec-10 28-Dec-10 28-Dec-10 24-May-11 03-Mar-11 03-Mar-11 07-Dec-11 09-Jul-10

AA+ (f) BBB+ (f) AA+ (f) AA-(f) A+(f) AA-(f) AA+(f) AA-(f) BBB (f) BBB (f) A+(f) BBB (f)

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35.

KASB Islamic Income Opportunity Fund

Fund Stability Rating Fund Stability KASB Income Opportunity Fund Rating Fund Stability KASB Liquid Fund Rating Fund Stability Lakson Money Market Fund Rating Fund Stability Lakson Income Fund Rating Fund Stability MCB Cash Management Optimizer Fund Rating Fund Stability MCB Dynamic Cash Fund Rating Fund Stability MetroBank Pakistan Sovereign Fund Rating NAFA Government Securities Liquid Fund Stability Fund Rating Fund Stability NAFA Cash Fund Rating Fund Stability NAFA Islamic Aggressive Income Fund Rating Fund Stability NAFA Income Fund Rating Fund Stability NAFA Income OppertunityFund Rating Fund Stability NAFA Riba Free Savings Fund Rating Fund Stability NAFA Saving Plus Fund Rating Fund Stability NIT Income Fund Rating Fund Stability NIT Government Bond Fund Rating Fund Stability Pakistan Cash Management Fund Rating Fund Stability Pakistan Income Enhancement Fund Rating Fund Stability Pakistan Income Fund Rating Pak Oman Advantage Islamic Income Fund Stability Fund Rating Fund Stability Pak Oman BOP Advantage Plus Fund Rating Fund Stability Pak Oman Advantage Fund Rating

22-Marl-11 22-Marl-11 09-Jul-10 21-May-10 02-Jun-10 03-Mar-11 03-Mar-11 10-Jan-11 10-Jan-11 10-Jan-11 10-Jan-11 10-Jan-11 10-Jan-11 21-Jan-11 10-Jan-11 04-Apr-11 04-Apr-11 10-Jan-11 10-Jan-11 10-Jan-11 13-Jan-11 09-Oct-09 13-Jan-11

BBB (f) BBB (f) BBB+ (f) AA (f) AA- (f) AA+ (f) A+ (f) AA (f) AAA (f) A+ (f) BBB (f) A- (f) A (f) AA-(f) AA- (f) AA- (f) AA (f) AAA (f) AA- (f) AA- (f) A+ (f) A- (f) AA- (f)

3 tags

International Rating Assignments

PACRA's has also lent its professional expertise and technical assistance to Fitch affiliates. To date, PACRA has successfully completed rating assignments in Hong Kong, Oman and Egypt, involving credit rating of various financial institutions as well as industrial corporate. PACRA is also assisting Fitch in ratings of large commercial banks in Pakistan. This is part of Fitch's international rating service.

Consultancy Assignments
Although credit rating would continue to be PACRAs core activity, it has also entered the field of consultancy. Given PACRAs extensive exposure to rating entities in the financial sector, it is imminently qualified for handling any consultancy assignment related to the sector. This competitive edge has been duly recognized by international organizations as reflected in the following assignments completed so for various international clients. Subject Client

Year 19961997 19961997 19961997 19971998 19971998 19971998 19971998 19981999

Pakistan Bond Market Study

Washington Asset Management Inc. Washington D.C. USA. The World Bank Netherlands Economic Institute, Rotterdam The Netherlands The World Bank IFC

Study on NBFI Sector In Bangladesh Evaluation of FMO's Contribution To Development through financial intermediaries in Pakistan during 1985-1995 Appraisal Of Network Leasing Company Survey of Leasing Sector In Pakistan

NBFI Project in Bangladesh Study on Pakistan's Financial Sector Evaluation of merger of Ibrahim Leasing and First Ibrahim Modaraba

The World Bank Netherlands Development Finance Company. Ibrahim Group

Chapter 5

PACRA's Rating Process

Rating is an interactive process relying primarily in gathering information from the issuer and supplementing it with strategic information obtained from outside independent sources. The entire process is aimed at evaluating (a) Financial Risk and (b) Business Risk Information with regard to (a) is generally provided by the company requesting for rating and, only when necessary, such information is corroborated or complemented by information from other sources. However, comprehensive information with regard to (b) is not readily available from any identifiable source. PACRA has, therefore, proceeded to develop its own database consisting of economic data by industrial sub-sectors. Additionally, it continuously monitors macroeconomic developments and important government policy changes (like fiscal adjustments) for determining their likely impact on specific sectors and companies. PACRA does not assign unsolicited ratings. This policy is based on our sensitivity regarding the motivation for such a practice: globally, unsolicited ratings have come under criticism as they seem to be a means of pressurizing recalcitrant entities to subject themselves to rating. Again, the value of credit rating flows from the interactive nature of the exercise. Thus, unless the rated entity has an opportunity to share the reasons for any delinquent performance in the past and its view on prospects, the rating opinion may not be reliable. The rating process begins with a careful review of an entity's published information. From this review, analysts (normally two, the lead and support analyst, are assigned to each rating assignment) determine what additional data are needed and a detailed questionnaire is sent to the client. An initial rating assessment is made and discussed internally. A discussion agenda is then prepared for a meeting with the client company's senior management. The meeting is wide-ranging, covering the company's financial position, earning trends, operating practices, competitive standing, future prospects, the economic environment and many other issues that can have a bearing on PACRA's assessment. In order to ensure full understanding of their position, companies entrust PACRA with confidential information, which is not disclosed in rating reports but which is certainly taken into account when assigning the ratings. In determining the initial ratings for an institution, a rating proposal is prepared based on the information gathered at the Management Meeting with the company, and is presented to the rating committee (comprising the Chairman, Managing Director, senior executives and the lead analyst). A draft rating report is then prepared and sent to the client for verification of the accuracy and confidentiality of the information in the report. Upon the client's approval, the one-page summary of the report is made public and a press release of the assigned rating is issued. The detailed rating report is sent to the client. RatingWatch: As and when any significant changes take place, the existing rating is placed on RatingWatch'. The rating is then upgraded, downgraded or maintained after assessing the impact of any such change.