Emerging markets launch ratings agency rival

ARC Ratings, five credit ratings agencies mainly from emerging markets, launched on Thursday a rival to the sector's main players including Fitch and Moody's. Pitching itself as a new international credit ratings agency, ARC hopes also to take clients from Standard & Poor's (S&P), which along with Fitch and Moody's, faced heavy criticism following the financial crisis. ARC said it would introduce new financial risk ratings to sit alongside long-established debt grades such as the top triple A rating. But it will not use the term "junk" to describe non-investment grades. Five credit rating agencies from Africa, Asia, Europe and Latin America -- all of which were established at the time of the financial crisis in 2008 -- have jointly created Europe-based ARC Ratings to serve clients wishing to use international debt markets. "The world has changed dramatically since the collapse of the US subprime debt market in 2008 which triggered the credit crunch," ARC chief executive Jose Pocas Esteves said at the launch in London. "ARC and its five founding partners believe that the old methods and approaches are no longer sufficient." Investors use ratings agencies to categorise likely returns and risks on financial instruments ranging from government debt to bonds issued by companies. Changes to ratings can affect the levels of financial returns earned by lenders and costs to borrowers. Ratings are also important for pension and mutual funds, as they are often limited to investing into assets which have been rated a certain level by the agencies. ARC introduces new ratings to the market "We will introduce a new rating, that is a Systemic Risk Rating (SRR)," ARC's chief ratings officer Uwe Bott told reporters at the launch. "These risks could be for example the so-called tapering by the Federal Reserve... and what the impact might be on markets" going forward. The main agencies were criticised in the wake of the financial crisis for allegedly being too backward-looking. All eyes are currently on the US Fed after it recently announced a scaling back of its massive stimulus project that has helped to support the world economy following the debt crisis. Bott added that an SRR could be given to risks not traditionally tracked by credit ratings agencies, such as a cyber attack. An SRR would be rated 'high', 'medium' or 'low', said Bott. ARC will introduce also a Financial Stability Rating which will assign a grade for individual financial jurisdictions. "Each jurisdiction where we have ratings, we will be looking at the (overall) financial stability," said Bott. ARC seeks to grow beyond Europe, emerging markets ARC noted that it still needed regulatory approval to operate in certain markets, notably the United States and China, adding that as an international ratings agency it was starting out with zero-percent market share. Portuguese ratings agency CPR, which has been rebranded as ARC Ratings, has joined forces with India's CARE, GCR of South Africa, MARC of Malaysia and Brazil's SR Rating. The agencies will continue to work in their home markets under their own names, while hoping to turn ARC into a global player. It will meanwhile focus on rating mid-sized companies. ARC's five agencies serve a combined 6,000 clients but Bott stressed that only a small percentage of these were of the mid-to-large sized companies that could be given new international ratings by ARC.   The main credit ratings agencies were heavily criticised within financial circles for their apparent slow response to the US subprime mortgage crisis which sent markets tumbling worldwide at the end of the last decade. Responding to the launch of ARC, a spokesman for S&P told AFP: "We welcome competition that supports high quality, independent ratings and delivers a diversity of views on credit risk to investors. "The track record of our corporate and government ratings, as indicators of default risk, is very strong and has remained so during the financial crisis."