Credit Rating Methods for Public–Private Partnership Infrastructure Projects and Small and Medium-Sized Enterprises in South Asia

Abstract

A credit rating compresses an enormous amount of diverse information into a single symbol. Credit quality embraces relative default probability, loss severity, financial strength, and transition risk. The purpose of this rating methodology is to help domestic credit rating agencies (DCRAs), issuers, investors, regulators, and other market participants understand how public–private partnership (PPP) projects could be assessed, and to explain how key quantitative and qualitative risk factors can be mapped to specific rating outcomes. This paper does not present an exhaustive treatment of each and every factor reflected in ratings of PPP projects and small and medium sized enterprises, but it should enable the reader to understand the key rating factors used by DCRAs in the final rating determination. It covers this ground and suggests rating methodologies that can help reduce procedural bottlenecks and thus boost credit availability in South Asia.