International foreign currency ratings effectively benchmark credit quality off US Government risk, and measure the ability of an organisation to service foreign currency obligations. In this regard, typically no organisation or debt issue in a country can be rated higher than the country's “sovereign risk rating”. However, exceptions can arise; particularly in the case of structured finance transactions (if there is an opportunity to pierce the sovereign cap, e.g. by trapping foreign currency offshore).

National Scale Ratings

The domestic local currency ratings assigned by GCR are tiered against an assumed “best possible” (usually central government) rating of ‘AAA' in each country and, therefore, do not incorporate the sovereign risks of a country. Such ratings are designed to give an indication of the relative risks only within a specific country and are not comparable across different countries. Accordingly, a Zimbabwe Dollar rating accorded to a Zimbabwean organisation is not comparable to a South African Rand rating accorded to a South African organisation.

The rating methodologies and rating scales utilised in the accordance of both types of ratings are very similar, but the key difference is that one scale measures the probability of default on FOREIGN CURRENCY obligations (taking into account all sovereign risk and currency conversion considerations), while the other measures the probability of default on LOCAL CURRENCY obligations. It stands to reason that, particularly in emerging markets such as Africa, there is a far higher probability of default with regards to the former.

SHORT TERM DEBT RATING SCALE:

GCR's Rating Symbols and Definitions Summary

A short term debt rating rates an organisation's general unsecured creditworthiness over the short term (i.e. over a 12 month period). Such a rating provides an indication of the probability of default on any unsecured short term debt obligations, including commercial paper, bank borrowings, BA's and NCD's.