Coface Credit Rating Gregory Mongrolle, Lead Analyst – Middle-East Aman Union Seminar

Coface Credit Rating - Agenda ●Coface Credit Rating (CCR) Scale ●Use of ratings for Coface ●Lists and types of companies to be rated ●CCR Production Standards: Main Principles ●Types of CCRs  CCR with figures  Quick Ratings  Derived Ratings ●Ratings in the Middle-East  Breakdown by countries  Countries covered

Coface Credit Rating Scale

Use of Ratings for Coface (1/2) Predictive of Default Rates

Use of Ratings for Coface (2/2) ●Improving risk management on significant exposures in credit insurance  35% of Coface exposure is rated  Tool for monitoring risk (discriminating risk in a portfolio, actions during crisis…)  Calculating RWE (Risk Weighted Exposure) by confirming scores  Permit to limit access to high risk products (minimum ratings for bonds, single risk/buyer, factoring…) ●Derived uses: Probabilities of defaults, expected average loss + PMLs  Statistical reporting on credit insurance activities  Detecting unusual risks (high PMLs) – Solvency 2  Adapting the reinsurance system  Calculating our economic capital requirement  Improving our pricing

CCR Production Standards: Main Principles ●The production of CCRs is the mission of the Rating Line ●Risk management in Credit Insurance is the unique use of CCRs ●External Communication, even with the rated company, is forbidden ●The production process integrates contacts as often as possible with the rated companies to update figures and collect in-depth information. Additional information is collected from other public and confidential sources, proprietary to Coface or not ●Rating Analysts monitor the credit risk on rated companies ●Decision process requires the involvement of (at least) two pairs of eyes or a Rating Committee

Lists & types of companies to be rated ●Large existing exposure in credit insurance:  Group of buyers with exposure > EUR 12Mn  Buyers with exposure > EUR 6Mn #14,000 companies to be rated (based on 31/12/10 exposure) ●Spot Ratings  For large POTENTIAL limit: No need for rating  For specific covers (as per UW standards) such as bonds, ceding risk for factoring, single buyers, single risks  By rating lines  By BRE for Unistrat applications

Types of CCRs: CCR with figures (1/2) ●Use of Ratios  Evolution Ratios  Evolution of Turnover  Evolution of Turnover compared to the evolution of Fixed Assets  Evolution of Turnover / (Current Liabilities – Cash)  Evolution of Operating margins  Profitability and Economic efficiency Ratios  Net and Operating margin  Return on Assets  Interest Coverage Ratio  Structure Ratios  Leverage Ratio  Debt Repayment Time ratio  Liquidity Ratios

Types of CCRs: CCR with figures (2/2) ●Statistical Corrections  Country Factor  Industry Factor  Size Factor ●Qualitative Corrections  The activity and the market structure (e.g. competition, cyclicality, capital intensive, price driven market)  Company’s specific position (e.g. leadership, upward trend in the order book, supplier or client dependence)  Production & Products (i.e. internal and external constrains)  Financing policy and contingencies (e.g. evolution of indebtness, source of financing, payment incidents)  Shareholder, Management & the State

Type of CCRs: Derived Rating (CCR derived from related company) Coface thinks that in some cases it uses a rating as reference for closely linked companies/groups ●When rating a subsidiary (for which no figures are available) of a rated Group  If links between the companies are qualified as strategic investment or core business the Group rating can be extended to the subsidiary  Corrections may be applied making the rating deviate slightly from the Group’s rating (around 2 notches) ●When rating a Group (for which we have no figures), but we have ratings on core business(es) / strategic subsidiaries  If company(ies) rates represent a significant portion of the sales/assets, rating of subsidiary (weighted average rating of subsidiaries) may be applied to the group  Corrections may be applied to other facts known by the analysts and not reflected in the subsidiaries ratings

Types of CCRs: Quick Rating (CCR without figures) No figure & no grid may be used as a reference ●Public buyers  Country rating  Experience ●Stand-alone company  Country Rating  Experience  Assessment of the company’s environment  Assessment of the size of the company  Assessment of the company’s financial situation (e.g. doubts over indebtness)

Ratings in the Middle-East: Breakdown by countries

Ratings in the Middle-East: Countries covered Q&A