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Fitch IBCA, DCR mergerwill create imbroglioin emerging marketsHARIS ZAMIR

KARACHI: The merger of Fitch IBCA and Duffs and Phelps Credit Rating Company, both the principals of two Pakistani credit-rating agencies, would create an acute imbroglio in the emerging markets including Pakistan.

Fitch IBCA, a subsidiary of a French operating company and Duffs and Phelps Credit Rating Co. (DCR) announced that they had entered into a merger agreement pursuant to which it would acquire DCR's shares worth $528 million at $100 per share. The acquisition would be completed through a cash tender offer, followed by a cash merger. The offer by Fitch IBCA is yet to be approved by the shareholders of DCR. Even if the offer is accepted by the shareholders the proposed acquisition/merger would have to be cleared by regulatory bodies with regard to anti-trust laws and creation of monopolies.

Since both companies have affiliates worldwide with varying degrees of shareholding, it would be a long and complex exercise to achieve worldwide merger due to uncertain reaction from the other shareholders of affiliates and the respective regulatory authorities. In Pakistan, both the companies are represented. DCR-VIS has offices in Karachi while Pacra has offices in Lahore. They are affiliates of Duffs and Phelps of USA and Fitch IBCA respectively.

The merger would have significant implications for local affiliates of both the companies in a large number of emerging markets. These include Pakistan, India, Argentina, Chile, Korea and Mexico.

Javed Masud, chief executive of Pacra, said the situation in the country is similar to that in several other countries but the top management might not adopt a uniform policy in every country. In some countries, local affiliates of the two companies could merge and in other countries one of the affiliates might terminate operations.

He further stated that the proposed merger was likely to take effect in the early part of April and things would become clearer after that.

Faheem Ahmad, President, DCR-VIS credit-rating company, believes that the rating market in Pakistan offers ample opportunities to international rating companies and if S & P and Moody's decide to come to Pakistan it would add a new dimension to the market.

The rating culture has been developing in Pakistan. It accelerated after the incorporation of the second rating company and has received a boost from the recent judgment of the Honorable Shariat Bench of Supreme Court in the Riba case. The court has directed that all companies, mutual funds, modarabas, etc., seeking finance of Rs 5 million and above a year should get rating done by independent rating agencies. The two rating companies have rated a number of investment and financial institutions and have contributed in the enhancement of investors' confidence.

Faheem pointed that currently three major rating companies, including DCR, are operating in India. The presence of these companies is contributing to the development of financial market and providing highest standard of information to investors.

In contrast, the two rating companies in Malaysia have developed their own expertise and are operating without affiliation with international rating companies. He stated that in a short span of time DCR-VIS was able to penetrate into the Middle Eastern market as well. The company has also got an equity stake in the first ever credit rating company in Bangladesh.