Criteria and Methodologies

CARE Ratings South Africa (Pty) Limited (CARE SA) undertakes a rating exercise based on information provided by the company, in-house databases and data from other sources that CARE SA considers reliable. CARE SA may undertake unsolicited ratings in accordance with its Unsolicited Ratings Policy, as outlined under Regulatory Guidelines.The primary focus of the rating exercise is to assess future cash generation capability of the company and its adequacy to meet debt obligations, even in adverse conditions. The analysis attempts to determine the long-term fundamentals and the probabilities of change in these fundamentals. The analytical framework of CARE SA’s methodology is divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics. Besides quantitative factors, qualitative aspects like assessment of management capabilities play a very important role in arriving at the rating for an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer. Rating determination is a matter of experienced and holistic judgment, based on the relevant quantitative and qualitative factors affecting the credit quality of the issuer. CARE SA has developed various general and sector specific Rating Methodologies which are available on our website. CARE SA reviews the Rating Criteria/Methodologies at least once in two financial years.

Definition of Default

Ratings are an opinion on the relative ability and willingness of an issuer to repay debt in a timely manner. CARE SA considers a missed payment of any amount, from the first day it is overdue, as default, whenever CARE SA is aware of such delay occurring in respect of any CARE SA-rated debt instrument, facility or issuer. This definition is uniformly applied to both capital market instruments and bank facilities. While assigning ratings to various types of bank facilities and other debt instruments, CARE SA takes into account the specific characteristics of such facilities when determining a missed payment, with these principles applied consistently across all issuers. For further details on the treatment of defaults on bank facilities and other debt instruments, please refer to the methodology on default recognition available on the CARE SA website.

What Ratings Do Not Measure

It is important to emphasize the limitations of credit ratings. They are not recommendations to renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. They do not take into account many aspects which influence an investment or lending decision. They do not, for example, evaluate the reasonableness of the issue price, possibilities for capital gains or take into account the liquidity in the secondary market. Ratings also do not take into account the risk of prepayment by issuer. Ratings neither take into account investors’ risk appetite nor the suitability of a particular instrument to a particular class of investors.

Rating Outlook

CARE SA’s rating outlook is an opinion on the likely direction of movement of the rating in the medium term. A rating outlook shall be assigned to all credit rating assignments undertaken by CARE SA.