SADC – DFRC DFI Stakeholder Workshop 26 March 2009

Agenda Credit Ratings in general Fitchs Rating Scales Fitchs Profile

What are Credit Ratings?

Credit Ratings >Fitch's credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used by investors as indications of the likelihood of receiving their money back in accordance with the terms on which they invested. >Assigned to ISSUERS and to OBLIGATIONS

Who Gets Ratings? >Financial Institutions >Corporates >Sovereigns >Local authorities >Debt, loans, preferred stock, other obligations of the above >Debt issued by SPVs

What Do Ratings Mean? >Independent, Timely, Prospective >Ratings measure credit risk – more specifically –Issuer Default Ratings >Probability of Default only –Issue ratings for corporates, banks, insurers and sovereigns >Probability of default, adjusted up or down to reflect relative loss severity (PD+LGD) –Issue ratings for structured finance >Probability of default, although underlying assets are analysed using loss severity assumptions

What Do Ratings Mean? >Ratings are ordinal –AA less likely to default than BB –Speculative-grade (BB+ and lower) more likely to default than investment- grade (BBB- and higher) >Ratings are through the cycle opinions >Ratings measure the obligation under the documentation –Can affect timeliness considerations –Can affect absolute amount of principal or interest obligation

What Does a Rating Do for my Company? >Enables better access to debt capital markets funding –Assists in obtaining a better take-up and pricing on bond issuance >Broadens investor base, aids tighter pricing –Helps in negotiating better pricing with correspondent banks –Helps in maintaining competitive tension between correspondent banks –Reduces level of collateral posted with credit card association –Assists in negotiating better financing terms with the World Bank, IFC, etc >Enables benchmarking to peers –Both on a local and an international base >Demonstrates transparency and discipline –Especially for issuers that are regularly in the public domain

What Do Ratings Not Include? >Fitch does not verify or audit data from an issuer >Fitch does not require, approve, or endorse issuer behaviour >Ratings are not recommendations to buy/sell or hold a security >Ratings do not constitute investment guidance, recommendations or advice >Ratings are not commentaries on pricing of bonds >Ratings are not an expression of a percentage probability of default >Credit ratings are not an assessment of anything other than credit risk

What Do Ratings Not Include? >Corporate Ratings do not incorporate Temporal Subordination –(i.e. a 10-day obligation has less risk than a 10-year obligation) >Fraud –Fraud means active misrepresentation of material facts or material embezzlement –Fraud is not simply mismanagement or incompetence – our view on management quality should be incorporated in the rating >Erroneous logic: They told us they would double profits in 6 months; if they dont, well, thats fraud isnt it?

Who Uses Ratings? >Investors >Banks >Regulators >Commercial Counterparties

Fitchs Rating Scales

Fitchs Investment Grade Ratings Scale F1+ F1 F2 F3 Short Term Rating Long Term Rating AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-

Fitchs Sub Investment Grade Ratings Scale B C D Short Term Rating Long Term Rating BB+ BB BB- B B- CCC- CC B+ CCC+ CCC C D

Rating Addendums >Add "+" or "- –suffixes that denote relative status within major rating categories (BBB-, BB+) >Rating Watch >Rating Outlook

Rating Watch >Notifies a reasonable probability that a rating change will take place (most likely relating to an expected event) –"Positive ( ) indicates a potential upgrade –"Negative ( ) a potential downgrade –"Evolving ( ) if ratings may be raised, lowered or maintained >Typically resolved over a relatively short period

Rating Outlook >Indicates the most likely direction of a rating over a one- to two-year period. –May be positive, stable, or negative –(Occasionally, Fitch may be unable to identify the fundamental trend and in these cases, the Rating Outlook may be described as "evolving") >Most Outlooks are stable

Time Line – sensitive to information flow! Company sends A/Cs and other information Dates for meeting Replies in advance of management meeting Comments from company Rating Agreement Signed Lead and backup analyst designated Review of publicly available information Questions sent to issuer Management meeting Further analysis Rating committee presentation and draft report Rating committee review and decision Preparation of final rating report and press release Ratings released to public domain. Full rating report available to subscribers Ongoing dialogue and application of ratings to new issue and progs Process requires interactive dialogue with issuer Mandate to Publication – The Ratings Process Explained

Fitchs Profile

Fitch Ratings Know Your Risk >One of only 3 global rating agencies with expertise and critical mass across the credit spectrum >Dual headquartered in London and New York >7,500+ active subscribers globally >1,800 employees in 35 countries, 49 offices worldwide >A mass of expertise at your service

Worldwide Offices and Staff Dubai

Why Fitch? >Fitch is an effective and proven alternative, offering issuers and their advisors the benefits of –Critical mass coverage –Broad investor acceptance –Clear and transparent methodologies and processes –Highly skilled and experienced analysts –A best in class research offering to a world wide client base of credit risk managers and investors – a great shop window for issuer visibility –A complete range of rating products –A cost effective fee structure –A strong service ethos dedicated to timely delivery of all aspect of its product and service offering

Your contact at Fitch Roland CooperTelephone