New City ratings agency aims to shake up sector

A NEW credit rating agency vying to compete with the big three existing firms launches in London this week, the latest presence in a sector with major credibility issues.

Portuguese ratings agency CPR has become ARC Ratings, with partner firms in India, South Africa, Malaysia and Brazil, the culmination of a project almost three years in the making.

“We realised that the world is changing, the world economy. We realised that the rating industry has to change as well,” said Jose Pocas Esteves, the chief executive of the new venture. He calls the existing structure of the sector an “oligopoly”, dominated by a small number of agencies.

“One of the changes the industry needs is more competition,” added Esteves, who comes to the venture as head of CPR, the Portuguese agency.

The group plans to have a specific focus on developing economies, where many mid-sized firms do not yet have access to international capital markets: “The mid-sized segment is absolutely critical. It’s going to be more important in the future as emerging markets expand.”

The group estimates that of 6,000 clients of the partner agencies, around 600 are in the mid-large sized category and would be seeking to access international credit in the years ahead.

Chief ratings officer Uwe Bott added the firm would focus more on systemic risks, and grade credit in four broad categories: high, moderate and low risk, or immediate default. He says that the firm will use models as tools, without becoming over-reliant.
Bott is also confident that investors will respond positively to the new developments: “We consider ourselves as a change agent. That means if we don’t attempt to change anything, nothing will change.”