POLICY FOR - PACRA fee-Dec18.pdf · iii The complexity of the Rating assignment in terms of unique...

The Pakistan Credit Rating Agency Limited

POLICY FOR CHARGING FEE

PACRA POLICY Page 1 of 3

December 2018 www.pacra.com

1 DETERMINATION

OF RATING FEE

Capitalized terms used herein are defined in Annexure I “Defined Terms”

1.1 Standard fee structure: PACRA standard fee structure furnishes a list of

charges relating to rating services. It contains all the rating services rendered and

functions performed by PACRA and the rate of fee for each such service and function.

The fee is provided mainly in the form of range (i.e. minimum and maximum) or in the

form of percentage or fixed amount in some cases.

1.2 Fee is communicated to and finalized with the Client before the beginning of the

Rating assignment. The most recent view of the fee structure is maintained on the

website. http://www.pacra.com.pk/pages/relationship/fee.php

1.3 PACRA largely abides by its standard fee structure. However, as the fee charged

is a function of diverse factors that may vary greatly in each individual case, fee may be

adjusted accordingly.

1.4 PACRA may adjust its fees under the following (not exhaustive) circumstances:

i If the Issuer is already rated by PACRA or has a prior Rating relationship with

PACRA. PACRA will also consider whether the Issuer is part of a group or has an

Associated Company that is already rated by it

ii The size of the issuance (a fee cap or floor may be applied to facilities /

programs, depending on the total facility/program amount)

iii The complexity of the Rating assignment in terms of unique risks or risks not

hitherto evaluated by PACRA

iv Fees for structured transactions will take into account the complexity of

transaction structures and nature of the underlying assets

1.5 Fee Negotiations: All fee negotiations are handled solely by the concerned

personnel in the Business development and marketing Department.

The standard fee structure is valid unless reviewed:

PACRA reserves the right to revise its standard fee structure at any time without

prior notice.

Revisions in standard fee structure may not routinely impact existing Clients as

existing Fee Mandates may be revised only after a mutual agreement has been

reached with the Client regarding such revision

1.6 Dissemination of Rating Actions: Rating Actions for all Ratings are

disseminated on PACRA’s website. PACRA receives no separate compensation from

Clients for disseminating Ratings on its website.

2 DISCLOSURE 2.1 PACRA makes the following disclosures in its annual financial statements:

(a) Its total revenue from rating services and non-rating services separately;

(b) Customer-wise non-rating revenue of the credit rating company or its holding

or subsidiary companies, if any, in case where non-rating revenue of the credit

rating company or its holding or subsidiary companies, if any, from any single

customer or group is ten percent (10%) or more of its or its holding or

http://www.pacra.com.pk/pages/relationship/fee.php





subsidiary companies’ total revenue; and

(c) Names of the customers who along with their associates contribute ten percent

(10% or more of the total revenue of the credit rating company or its holding

or subsidiary companies.

3 TASKS 3.1 Business Development and Marketing: A current version of the standard fee

structure is always maintained on the website.

3.2 Finance: Specified disclosures are present in the annual financial statements.

4 POLICY

ADMINISTRATION

4.1 Interpretation: Competent Authority is responsible for interpreting and applying

the Policy to specific situations when questions arise. Competent Authority is designated

on a case-to-case basis based on relevant competency.

4.2 Review: This Policy is subject to review as follows:

Reviewer Scope Frequency Regulation

Competent

Authority

Appropriateness

& sufficiency Annual

Chapter III | 11-B-

(k)

Internal Audit Actual vs. Policy Annual Chapter III | 11-B-(l)

Expert Comprehensive

Every

three (3)

years

Chapter III | 11-A-

(b)

4.3 Policy Approval: This Policy is required to be approved by the board of directors.

4.4 Investigations of Suspected Violations: All reported violations shall be promptly

investigated and treated confidentially to the extent reasonably possible.

4.5 Disciplinary Protocol: Compliance with all Codes of Conduct and PACRA

Policies, including this Policy, is a condition for employment. Compliance with the Codes

and PACRA Policies shall be monitored on periodic basis:

Those who come within the bounds of this Policy shall cooperate fully to provide

truthful, accurate information

The current version of this Policy is available on the website:

www.pacra.com

5 REGULATORY

REQUIREMENT

5.1 PACRA’s compliance to SECP’s regulatory requirements in terms of the Policy

for Charging Fee is as follows:

PACRA’s Compliance for Policy for Charging Fee

SECP’s Code of Conduct for Credit Rating Companies (CRCs) Regulations, 2016

SECP Regulation Code Clause

Regulation Chapter III | 15-(1): The credit rating company shall prepare a

list of fees and charges relating to its rating services and disseminate the same

on its website

Regulation Chapter III | 15-(2): The list of fees and charges must contain all

Clause 1.1

http://www.pacra.com/





the rating services rendered and functions performed by it and the rate of fee

for each such service and function.

Regulation Chapter III | 15-(3): The fee may be provided in terms of

percentage, in the form of range (i.e. minimum and maximum) or in the form

of fixed amount for each service/function.

Regulation Chapter III | 15-(4): The credit rating company shall provide the

list of fee charged against national or social cause projects.

Regulation Chapter IV | 22-(2): A credit rating company shall disclose in its

audited annual financial statements, the following information:

(a) its total revenue from rating services and non-rating services

separately;

(b) customer-wise non-rating revenue of the credit rating company or its

holding or subsidiary companies, if any, in case where non-rating

revenue of the credit rating company or its holding or subsidiary

companies, if any, from any single customer or group is ten percent

(10%)or more of its or its holding or subsidiary companies’ total

revenue; and

(c) names of the customers who along with their associates contribute

ten percent (10%)or more of the total revenue of the credit rating

company or its holding or subsidiary companies.

Section 2

Annexure H: (List of Policies to be developed & disclosed by a

credit Rating company / agency: Policy for Charging Fee

Policy developed

& disclosed on

website


ANNEXURE I | CHARGING FEE

ANNEXURE Page 1 of 3


DEFINED TERMS

Associated Company

“Associated companies” and “associated undertakings” as defined in The Companies Act

(2017), Part 1, Clause 2-(4):

“ ‘associated companies’ and ‘associated undertakings’ - mean any two or more

companies or undertakings, or a company and an undertaking, interconnected with each

other in the following manner, namely:—

(a) if a person who is owner or a partner or director of a company or undertaking, or who,

directly or indirectly, holds or controls shares carrying not less than twenty percent of the

voting power in such company or undertaking, is also the owner or partner or director of

another company or undertaking, or directly or indirectly, holds or controls shares

carrying not less than twenty percent of the voting power in that company or

undertaking; or

(b) if the companies or undertakings are under common management or control or one is

the subsidiary of another; ”

Client An entity / issuer, whose rating assignment is to be undertaken, having signed a Rating

Agreement with PACRA

Codes of Conduct Sets of Standards (Do’s & Don’ts) governing day-to-day conduct

Competent Authority A designated authority considered to possess the requisite expertise / knowledge

Initial Rating

The Rating assigned by PACRA for the first time

Ratings are also termed “Initial” when a previously:

i Private Rating converts into a Public Rating

ii Preliminary Rating is finalized

iii Withdrawn Rating comes back to PACRA with a fresh Mandate

iv Defaulted Rating emerges from default and assigned a fresh Rating

Issuer Any entity by which a security has been / being issued

Line of Business

Areas of activity / functionality at or in PACRA: (i) Ratings, (ii) Criteria Group, (iii)

Business Development & Marketing, (iv) Compliance & Policy, (v) Support, (vi) Non-

rating business

Potential Conflict of

Interest (COI)

A COI that exists due to inherent aspects in a business model despite institution of prudent

systems and controls to manage such COI

Preliminary Rating The Rating assigned to a debt instrument / mutual fund yet to be issued based upon its

proposed terms and conditions

Public Dissemination

(also termed

Announcement)

Distribution of information in a manner whereby it becomes widely, freely and

simultaneously available to all users of such information. This includes public filing with a

regulatory body and disclosure on PACRA’s website or in media

Ratee The entity / issuer whose Rating is assigned

Rating

“An opinion regarding securities or a person expressed in the form of standard symbols or

in any other standardized manner, assigned by a credit rating company and includes credit

rating.”

Credit Rating Companies Regulations, 2016, Regulation Chapter I, 2-1-(i)





Rating Agreement An agreement enumerating the terms and conditions driving the rating relationship between

PACRA and the Ratee

Rating Analyst also

termed as “Analyst”

“An employee of the credit rating company who performs analytical functions that are

necessary for the issuing or monitoring of a credit rating or participates in determining

credit ratings”

Credit Rating Companies Regulations, 2016, Regulation Annexure F, p 48

Rating Modifiers

Rating Modifiers are refinements about a Rating opinion that PACRA may use:

PACRA employs two modifier listings:

(i) Rating Watch

Alerts to the possibility of a Rating change subsequent to, or in anticipation of, a) some

material identifiable event and/or b) deviation from expected trend. But it does not mean

that a Rating change is inevitable.

Rating Watch may carry designations.

A watch should be resolved within foreseeable future, but may continue if underlying

circumstances are not settled.

(ii) Outlook:

Indicates the potential and direction of a Rating over the intermediate term in response to

trends in economic and/or fundamental business/financial conditions. It is not necessarily a

precursor to a Rating change:

‘Stable’ outlook means a Rating is not likely to change.

‘Positive’ means it may be raised.

‘Negative’ means it may be lowered.

Where the trends have conflicting elements, the outlook may be described as

‘Developing’

Rating Report A public document on PACRA’s website containing a Rating rationale, analyses, financials

and regulatory and supplementary disclosures

Rating Actions

Typical Rating decisions that PACRA takes in relation to its Rating. These are:

i Upgrade: The Rating has been raised in the Rating Scale

ii Maintain: The Rating has been kept at the same level on the Rating scale.

Ratings “Maintain” may also include a continuation of, or change in a Rating

Modifier (Outlook, Rating watch), if it is used

iii Downgrade: The Rating has been lowered in the Rating Scale

iv Improved: The performance ranking is higher compared to previous one in the

Fund Performance Ranking Scale

v Declined: The performance ranking is lower compared to previous one in the Fund

Performance Ranking Scale

vi Same: The performance ranking is similar compared to previous one in the Fund

Performance Ranking Scale

vii Withdraw: A Rating is withdrawn on: a) termination of Rating mandate, b)

cessation of underlying entity, c) the debt instrument is redeemed, d) the Rating

remains suspended for six months, or e) the entity/issuer defaults

viii Redeem: Withdrawal on account of redemption of obligations

ix Suspended: It is not possible to update an opinion due to lack of requisite

information. Opinion should be resumed in foreseeable future. However, if this





does not happen within six (6) months, a suspended Rating should be considered

withdrawn.

x Initial: The Rating has been assigned as an “Initial Rating”

xi Preliminary: The Rating has been assigned as a “Preliminary Rating”

xii Outlook / Rating Watch: See the definition for Rating Modifiers

xiii Harmonize: Rating action evolving from the process of harmonization. PACRA

defines harmonization as a change in rating due to revision in applicable

methodology or underlying scale.

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