The Pakistan Credit Rating Agency Limited...SECP Regulation Code Clause Regulation Chapter III | 18-(e): if a credit rating company discontinues monitoring a rating for a rated entity

The Pakistan Credit Rating Agency Limited

POLICY FOR WITHDRAWAL AND

SUSPENSON OF RATINGS

RATING POLICY Page 1 of 3

December 2018 www.pacra.com

1 INTRODUCTION Capitalized terms have the meaning set forth in “Defined Terms”

1.1 A Withdrawn Rating means that a previously issued Rating has been

withdrawn and no longer outstanding in PACRA’s universe. A Rating is withdrawn

on: a) termination of Rating Agreement, b) cessation of underlying entity, c) the debt

instrument is redeemed, d) the Rating remains suspended for six months, or e) the

entity/Issuer defaults.

1.2 Suspension implies that it is not possible to update a Rating due to lack of

requisite information. Rating should be resumed in foreseeable future. However, if this

does not happen within six (6) months, the Rating should be considered withdrawn.

2 WITHDRAWAL

OF RATING

2.1 Request to withdraw: PACRA withdraws a Rating at the request of a Client.

2.2 Reorganization: When an entity ceases to exist as a result of a merger /

acquisition:

The Ratings of such entity’s instruments, if any, are reviewed and updated with

reference to the terms and conditions under which these obligations are now

assumed by the entity emerging after the completion of reorganization

2.3 Instrument not outstanding: The rating on an instrument is withdrawn when

the instrument is not outstanding. This includes:

i when an instrument matures

ii when an instrument is called / prepaid (repaid before the maturity date)

iii when a Preliminary Rating is released but the instrument is ultimately not

issued

2.4 Protracted Suspension: Suspension entails that it is not possible for PACRA to

update a Rating. During the time, a rating stands suspended; PACRA expands all its

resources to reinstate the rating. However, a rating suspended for more than six-

months shall be considered Withdrawn and no separate Press Release shall be made to

this effect.

2.5 Default: PACRA considers default an “all consuming” state for the Rating

which stands Withdrawn at the time of this event. Any subsequent rating review is

considered an Initial Rating,

2.6 Conflict of Interest: PACRA immediately withdraws a Rating if it considers

that maintaining and monitoring such Rating would expose PACRA to a Potential

Conflict of Interest situation.

3 SUSPENSION OF

RATING

3.1 PACRA suspends a rating when the rated entity either doesn’t provide

information requested by PACRA or provides information that PACRA doesn’t

consider sufficient and PACRA cannot otherwise obtain the requested information

through public channels.

4 PRE-REQUISITES 4.1 PACRA doesn’t forbear or refrain from taking a Rating Action based on the

potential effect (such as a Downgrade or the Client withdrawing from PACRA).






& PROCESS PACRA may withdraw or suspend a rating at any time in its sole discretion subject to

the following pre-requisites and process:

PACRA keeps its opinions current at all time (exceptions are Point-in-time

ratings such as Security Gradings, Mutual Fund Star Rankings, Stability

Ratings, and Broker Management Ratings). This enables PACRA to review a

Rating at any time if circumstances demand so

The decision to withdraw or suspend a rating is taken by PACRA RC.

However, if the Rating is being Withdrawn at Ratee’s formal request or the

underlying instrument has been redeemed as per its term, RC is not required to

be convened.

When PACRA withdraws or suspends a rating, it makes the withdrawal

announcement via a separate Press Release except in the case of (2.4) and (2.5)

above

5 TASKS 5.1 The Press Release for withdrawn and suspended Ratings must contain the

following specific information content pertaining to such publication as specified in

Regulation Chapter III | 17-(e):

Date on which the rating was last updated or reviewed

The reason the rating is no longer monitored

The fact that the rating is no longer being updated

6 POLICY

ADMINISTRATION

6.1 Interpretation: Competent Authority is responsible for interpreting and

applying the Policy to specific situations when questions arise. Competent Authority is

designated on a case-to-case basis based on relevant competency.

6.2 Review: This Policy is subject to review as follows:

Reviewer Scope Frequency Regulation

Competent

Authority

Appropriateness

& sufficiency Annual Chapter III | 11-B-(k)

Internal Audit Actual vs. Policy Annual Chapter III | 11-B-(l)

Expert Comprehensive

Every

three (3)

years

Chapter III | 11-A-(b)

6.3 Policy Approval: This Policy is required to be approved by the board of

directors.

6.4 Investigations of Suspected Violations: All reported violations shall be

promptly investigated and treated confidentially to the extent reasonably possible.

6.5 Disciplinary Protocol: Compliance with all Codes of Conduct and PACRA

Policies, including this Policy, is a condition for employment. Compliance with the

Codes and PACRA Policies shall be monitored on periodic basis:

Those who come within the bounds of this Policy shall cooperate fully to

provide truthful, accurate information






The current version of this Policy is available on the website:

www.pacra.com

7 REGULATORY

FRAMEWORK

7.1 PACRA’s compliance to SECP’s regulatory requirements in terms of the

Policy for Withdrawal and Suspension of Ratings is as follows:

PACRA’s Compliance for Policy for Withdrawal and Suspension of Ratings

SECP’s Credit Rating Companies (CRCs) Regulations, 2016

SECP Regulation Code Clause

Regulation Chapter III | 18-(e): if a credit rating company

discontinues monitoring a rating for a rated entity or security it should

either withdraw the rating or disclose such discontinuation to the

public or to its subscribers (depending on the rating company’s

business model) immediately. A publication by the credit rating

company of a rating that is no longer being monitored should indicate

the date the rating was last updated or reviewed, the reason the rating

is no longer monitored, and the fact that the rating is no longer being

updated.

Section 2 and

Section 5

Annexure I: (List of Policies to be developed & disclosed by a

credit rating company / agency: Policy for Withdrawal and

Suspension of Ratings

Policy developed

& disclosed on

website

http://www.pacra.com/


ANNEXURE I | WITHDRAWAL AND

SUSPENSION OF RATINGS

ANNEXURE Page 1 of 2


DEFINED TERMS

Client An entity / issuer, whose rating assignment is to be undertaken, having signed a Rating

Agreement with PACRA

Codes of Conduct Sets of Standards (Do’s & Don’ts) governing day-to-day conduct

Competent Authority A designated authority considered to possess the requisite expertise / knowledge

Conflicts of Interest

(COI)

Conflict of interest (COI): A situation wherein an individual / organization, upholding a position

of trust and fiduciary responsibility, encounters a competing personal / professional interest that has

the potential to make it difficult for such individual / organization to fulfill its position of trust /

fiduciary responsibility objectively and impartially:

i Potential COI: A COI that exists due to inherent aspects in a business model despite

institution of prudent systems and controls to manage such COI

ii Actual COI: A COI that comes into existence as a result of a failure in systems and

controls instituted to manage a potential COI

Default

i Failure of an obligor to make timely payment of principal and/or interest under contractual

terms of any financial obligation

ii A distressed restructuring whereby the restructuring has the effect of allowing the obligor to

avoid a payment default

This definition is uniformly applied both for capital market instruments and bank facilities

Initial rating

The rating assigned by PACRA for the first time

Ratings are also termed “Initial” when a previously:

i Private Rating converts into a Public Rating

ii Preliminary Rating is finalized

iii Withdrawn rating comes back to PACRA with a fresh Mandate

iv Defaulted rating emerges from default and assigned a fresh rating

Issuer Any entity by which a security has been / being issued

Issuing a rating Ratings are issued when PACRA informs a Client of the assigned rating by a Rating Notification

Point-in time Ratings A Rating that is current only at the time of its assignment

Ratee The entity / issuer whose rating is assigned

Rating Committee

(RC)

PACRA Rating Committee (RC) is a forum whereby the rating proposed by the Rating Team

undergoes deliberation culminating in a decision as to what the final rating would be. RC is core to

the finalization of rating opinion. Rating decisions are taken exclusively by the RC and not by any

individual and are completely independent of any influence.

Preliminary Rating The rating assigned to a debt instrument / mutual fund yet to be issued based upon its proposed terms

and conditions

Press Release A standard PACRA communiqué employed for Public Dissemination of Rating Actions

Rating Actions

Typical Rating decisions that PACRA takes in relation to its rating. These are:

i Upgrade: The rating has been raised in the Rating Scale

ii Maintain: The rating has been kept at the same level on the rating scale. Ratings

“Maintain” may also include a continuation of, or change in a Rating Modifier (Outlook,


ANNEXURE I | WITHDRAWAL AND

SUSPENSION OF RATINGS

ANNEXURE Page 2 of 2


Rating watch), if it is used

iii Downgrade: The rating has been lowered in the Rating Scale

iv Improved: The performance ranking is higher compared to previous one in the Fund

Performance Ranking Scale

v Declined: The performance ranking is lower compared to previous one in the Fund


vi Same: The performance ranking is similar compared to previous one in the Fund


vii Withdraw: A rating is withdrawn on: a) termination of rating mandate, b) cessation of

underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for

six months, or e) the entity/issuer defaults

viii Redeem: Withdrawal on account of redemption of obligations

ix Suspended: It is not possible to update an opinion due to lack of requisite information.

Opinion should be resumed in foreseeable future. However, if this does not happen within

six (6) months, a suspended rating should be considered withdrawn.

x Initial: The rating has been assigned as an “Initial Rating”

xi Preliminary: The rating has been assigned as a “Preliminary Rating”

xii Outlook / Rating Watch: See the definition for Rating Modifiers

xiii Harmonize: Rating action evolving from the process of harmonization. PACRA

defines harmonization as a change in rating due to revision in applicable

methodology or underlying scale.

Rating Notification Informing the Client of assigned rating / Rating Action through a standard PACRA communiqué –

the Rating Notification Letter

The Pakistan Credit Rating Agency Limited...SECP Regulation Code Clause Regulation Chapter III | 18-(e): if a credit rating company discontinues monitoring a rating for a rated entity

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