SEC grants first national credit rating license

Deborah Agyemfra, Deputy Managing Director of the SEC

The Securities and Exchange Commission (SEC) has issued the first credit rating license to an indigenous company in Ghana, which will allow an independent assessment of the creditworthiness of debt securities in the Ghanaian fixed income market.

This will stimulate the development of the corporate bond market, as corporate bond issuers need to find a rating agency to rate their debt – which investors rely on when deciding whether or not to buy the securities. ‘a company.

According to the deputy chief executive of the SEC, Deborah Agyemfra, the first license was issued to the credit rating agency Beacon before the official publication of the credit rating agency (CRA) guidelines.

“One thing we want as a regulator is to be ready by issuing the guidelines. It’s up to market players in this space to take advantage of the guidelines and apply them, ”the deputy director said in an interview following Time’s Forensic Service edition with the SEC.

“There was a pre-release application for the guidelines, which we reviewed and licensed. It is a Ghanaian company. So for new applications, we will use these guidelines to grant the license, ”she explained.

In accordance with the 2022 budget, the National Credit Rating Agency (DCRA) will be operationalized in 2022 as part of the many initiatives that will be undertaken to stimulate the development of the corporate bond market.

The creation of the DCRA will promote a culture of credit, risk-based lending and fair pricing of debt instruments. Indeed, DCRA operations will also reduce the information asymmetry between market participants and facilitate investment decisions by helping investors to obtain relevant information to achieve a balance in the risk profile and help companies to access capital.

Cumulatively, data from the Ghana Stock Exchange indicates that corporate securities outstanding in the bond market as of September 2021 amounted to approximately GH ¢ 11.47 billion, which far exceeds the period from 2020 to GH ¢ 9.92 billion. “The SEC has yet to initiate an approval process for any further applications,” Ms. Agyemfra noted.

Rating agencies assess the credit risk of specific debt securities and borrowing entities, particularly their ability to meet principal and interest payments on their debts, and then assign ratings indicating the level of confidence the borrower will be. able to honor its debt obligations as agreed with investors.

Part of the guidelines requires that a rating agency not issue any kind of promise, warning or threat regarding potential credit rating action to influence rated entities, debtors, originators, underwriters, arrangers or users of credit ratings from rating agencies to exert undue pressure on them to perform or refrain from taking action.

Ratings are used in structured finance transactions such as asset backed securities, mortgage backed securities and asset backed bonds. Rating agencies focus on the type of pool underlying the security and the proposed capital structure for rating structured finance products. Issuers of structured products pay rating agencies not only to rate them, but also to advise them on how to structure the tranches.

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