950809

Letter of Intent signed

DCR of US to set up new

credit rating agency

HARIS ZAMIR

KARACHI: Duff & Phelps Credit Rating (DCR) Co, an American-based company, will establish a credit rating agency in Pakistan in co-operation with the Asian Development Bank, Muslim Commercial Bank, Karachi Stock Exchange and a private company Vital Information Services.

A letter of intent was signed here on Wednesday for the establishment of DCR which will be based in Karachi.

Daniel J. Donoghue, DCR Executive Vice-President, on signing the 'Letter of Intent' said that on the preliminaries of the joint venture now completed the Corporate Law Authority will be approached for formal listing.

Replying to a question, he said the DCR, being only the second rating company in the country, would generate a healthy competition. "Credit rating is needed in the development of the capital market to provide protection to shareholders. The floatation of the new scrips has created enough scope for a new rating agency but three or four would have a negative impact," he said.

The other credit rating agency in the country, Pakistan Credit Rating Agency (Pacra) based in Lahore, is run by a British firm in co-operation with a local company, International Finance Corporation (IFC) and the Lahore Stock Exchange.

The new company (DCR) would be established with an equity of Rs 20 million ($ 700,000). It is believed that this amount of capital will be sufficient to sustain the agency until cash flow becomes strong and consistent. The ownership structure will be: DCR 40 percent, ADB 20 percent, Vital Information Service 27.5 percent and Karachi Stock Exchange 12.5 percent.

DCR is one of the four credit rating agencies of the United States and it is known for its expanding role in the emerging markets. Besides Pakistan, the company already has its subsidiaries in Mexico, Argentina, Venezuela and Chile.

According to Asghar Ali Merchant, research analyst of Khadim Ali Shah Bukhari & Co. foreign rating agency working for the local corporate sector would surely help the bond market to grow manifold.

"The market forces should be allowed to play their role in the open market competition. Any new rating agency will create its own niche in the market and should not be dependent on a particular company," he said.

DCR will provide technical assistance to the Karachi agency in the development of the business. This assistance will include the establishment of appropriate rating procedures, training of analysts and participation in relevant rating committee meeting. The agency will participate in the international rating process and share in the fees associated with this business.

Besides delegates of Duff and Phelps Credit Rating Company, Sirajuddin Cassim, Hussain Lawai, President Muslim Commercial Bank, and Faheem Ahmad, chief executive, Vital Information Services, were present at the signing ceremony of the Letter of Intent.