A Key Factor For The Issuer’s Path To Global Investors · 04.06.2018 · Henry Varnum Poor and...

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S&P Global Credit Rating As A Key Factor For The Issuer’s Path To Global Investors

Permission to reprint or distribute any content from this presentation requires the

prior written approval of S&P Global Ratings.

Copyright © 2018 by Standard & Poor’s Financial Services LLC. All rights reserved

Elena Eliseyenko Branch Head Russia/CIS Ukraine & Georgia

15 May 2018

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Who Are We?




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S&P Global Ratings: Global Reach

In business for

150+ years

Provides global reach

and local knowledge

with an office network

spanning 28 countries

3

Approximately

1,500 ratings analysts issuing

ratings on 125+

countries

$47 trillion par value of

outstanding

ratings

More than 1 million

credit ratings outstanding

on government, corporate,

financial sector and

structured finance entities

and securities

Provides

perspective on the

creditworthiness of

an entity or the

debt it issues

Source, $ in new debt rated: Harrison Scott Publications, Thomson Reuters, S&P Global Ratings and S&P Global 2017 Investor Fact Book.




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The Breadth of Our Analytic Coverage

4

(Number of Issues Rated)

50,672 Corporate Ratings

58,582 Financial

Institutions Ratings

6,859 Insurance

Companies Ratings

952,910 Government

Securities Ratings

49,162 Structured

Finance Ratings

Source: Latest NRSRO form submitted to SEC in December 2017. S&P Global Ratings website

https://www.standardandpoors.com/en_US/delegate/getPDF?articleId=1984123&type=COMMENTS&subType=REGULATORY




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Who We Are (cont’d.)

We are part of S&P Global, the world’s foremost provider of credit ratings,

benchmarks and analytics in the global capital and commodity markets. S&P

Global’s divisions are:

S&P Global’s goal is to provide the essential intelligence you need to make

decisions with conviction.

S&P Global’s principles:

Integrity Relevance Excellence

5




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Our Views And What We Do

We believe that there is a marketplace need for financial

information and transparency. The world’s financial markets

depend on S&P Global Ratings for our accessible insights and

valued perspective that drive clarity and growth in the market.

To provide investors with metrics for comparability

6

Since 1860, this has been

one of our core principles,

starting with our founder,

Henry Varnum Poor and

his commitment to “the

investor’s right to know.”

We update and

refine our

processes to align

with developments

in the marketplace.

This enables us to

offer insightful

opinions that help

market participants

make more

informed decisions.




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Our Analytic Coverage

We cover these broad sectors:

Corporates Sovereigns/

international

public finance

Financial

institutions

Infrastructure

and utilities

Structured

finance

U.S. public

finance

Insurance

companies

7

$

Funds

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What Are Credit Ratings?




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What Is A Credit Rating?

A guarantee of credit quality or default probability

Investment advice or recommendation (buy, sell or hold)

A measure of liquidity or price

A way of defining “good” or “bad” companies

An audit of the company

A forward-looking opinion about the ability and willingness of an issuer, such as a

corporation or government, to meet its financial obligations in full and on time (i.e.

creditworthiness)

Strives to be globally comparable across sectors

Incorporates views on the relative likelihood of default that are applied to entities

(issuers) and securities (issues)

One of many inputs available to investors as part of their decision-making process

What It Is

And What It Is Not

9




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What Credit Ratings Do

They foster the development and smooth functioning of capital markets by

providing transparent information and insight to market participants.

Additionally, credit ratings provide investors with:

Smooth functioning of the capital markets enables:

10

Common terminology to

describe different levels of

creditworthiness (e.g., AAA)

Third-party

opinions

Information to help

make more

informed decisions

People to start and

grow businesses

Governments to

improve infrastructure Manufacturers to build

factories and create jobs




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Increase knowledge of, and

access to, new markets

Gain insight into

the cost of capital

Enhance the investment

decision-making process

Enhance transparency

Assess/demonstrate

credit worthiness

Benchmark financial

strengths and weaknesses

Why Are Credit Ratings Useful

See https://www.spratings.com//en_US/understanding-ratings

One Rating

Many Uses

https://www.spratings.com/en_US/understanding-ratings






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Raising Capital Through Rated Securities

Investors purchase rated securities

Issuers issue rated securities to raise capital

12

Investors Intermediaries Issuers

Issuers include corporations, financial institutions, national governments, states, cities and municipalities.

Intermediaries include investment banks.

Investors include institutional investors, and mutual funds, pension funds, banks, and insurance companies.




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Comparison Of Rating Agencies’ Business Models

By allowing public ratings to be made available free of charge to all investors, this model

avoids selective disclosure and levels the playing field for all market participants.

Public disclosure of ratings means our opinions are subject to market scrutiny every day

Each business model has distinct advantages and disadvantages.

S&P Global Ratings utilizes the Issuer-Pay model.

We believe this model provides the greatest transparency to the market.

Subscriber Model

Certain investors, such as

hedge funds and financial

companies, would contract

and pay for ratings reports

to receive them on a non-

public, proprietary basis.

Government Utility Model

A ratings organization is run

or directed by a government

and may be funded by

investors, subscribers, or a

public tax on issuance or

outstanding debt.

Issuer-Pay Model

Issuer organizations pay

fees to a rating firm as

part of the process to

issue securities in the

marketplace.

13




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Ratings: Filling A Gap Between Issuers And Investors

Then consider credit ratings

If investors seek:

A third-party opinion of credit quality

A basis for comparison across asset

classes, geographies and peers

Information and metrics to make

informed decisions

If borrowers/issuers seek to:

Optimize the cost of funding

Expand the pool of investors and

available capital

Lengthen the terms of financing

Diversify funding sources

14

Third-party perspective Comparable Forward-looking

https://www.linkedin.com/hp/update/6263708505715286016




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S&P Global Ratings: Meeting Issuer Needs

When you want to: Consider our:

Issue ratings for bonds or bank loans

Assist in pricing discovery and market

liquidity

Access the debt capital markets

Find a tool to help negotiate credit

conditions with banks and other

financial counterparties

Bank loan ratings

Assist in pricing discovery and

market liquidity

Issue ratings for bonds or bank loans

Assist in pricing discovery and

market liquidity

Reduce your cost of funding

Improve your bargaining power

with suppliers/other non-

financial counterparties

Corporate credit rating

Describe your credit strength,

a credit credential

15




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S&P Global Ratings: Meeting Investor Needs

Consider our broad range of products and services when you want to:

16

Compare different

issuers and/or

debt issues

Establish thresholds

for credit risk;

establish investment

guidelines

Supplement

internal credit

analysis

Assess

credit risk




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Our Ratings Categories In

ve

stm

en

t G

rad

e

Sp

ec

ula

tive

Gra

de

AAA Extremely strong capacity to meet financial commitments. Highest rating.

AA Very strong capacity to meet financial commitments.

A

Strong capacity to meet financial commitments,

but somewhat susceptible to adverse economic conditions and changes in circumstances.

BBB

Adequate capacity to meet financial commitments, but more subject to adverse economic

conditions.

BBB- Considered lowest investment grade by market participants.

BB+ Considered highest speculative grade by market participants.

BB

Less vulnerable in the near term, but faces major ongoing uncertainties and exposure to

adverse business, financial or economic conditions

B

More vulnerable to adverse business, financial and economic conditions, but currently has

the capacity to meet financial commitments.

CCC

Currently vulnerable and dependent on favorable business, financial and economic

conditions to meet financial commitments.

CC Highly vulnerable; default has not yet occurred, but is expected to be a virtual certainty

C

Currently highly vulnerable to non-payment, and ultimate recovery

is expected to be lower than that of higher rated obligations.

D

Payment default on a financial commitment or breach of an imputed promise; also used

when a bankruptcy petition has been filed or similar action taken.

17

Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

See “Ratings Definitions” on www.spglobal.com/ratings.

General summary of the opinions reflected by our ratings




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Our Rating Process

6 Surveillance

The goal of surveillance is to

keep the rating current by

identifying issues that may

result in a change to the rating.

1 Origination

A customer requests a rating

and receives our Terms and

Conditions. S&P Global

Ratings will determine

whether it has the resources

and information available to

issue a rating.

2 Analytic Review

An analyst collects and

evaluates information and

prepares the recommended

rating action.

3 Rating Committee

The analyst presents the

recommended rating action.

The committee reviews the

recommendation and

committee presentation

materials and votes on the

credit rating action

5 Publication

We publish a press release

announcing the public rating

and post the rating on our

external website,

www.standardandpoors.com.

4 Rating Notification &

Pre-Release The analyst may notify the

customer of the rating decision

and provide an opportunity to

review the written rationale for

fact-checking and accuracy

purposes.

18

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What Are Our Capabilities?




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Primary Elements Of Our Sovereign Rating Criteria

20

Economic Structure and Growth

Prospects

External Liquidity and International

Investment Position

Fiscal Performance and Flexibility,

as well as Debt Burden

Monetary Flexibility

Institutional Effectiveness

Rating




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Primary Elements Of Our Corporate Rating Criteria

21

Rating

Country Risk

Cash Flow/Leverage

Industry Risk

Competitive Position

Diversification/Portfolio Effect

Liquidity

Financial Policy

Capital Structure

Management/Governance

Group or Government Influence

Comparable Ratings Analysis




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Primary Elements Of Our Banking Sector Criteria

Economic Risk

Industry Risk

Business Position

Capital and Earnings

Risk Position

Funding and Liquidity

ALAC Support (Additional Loss Absorbing Capacity)

Government Support

Group Support

22

Rating

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How Have Ratings Performed?




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Default Risk: What Our Research Shows

The lower the

corporate rating, the

higher the likelihood

of default

The higher the

corporate rating, the

lower the likelihood

of default

Of all the companies we

rated as “investment grade”

(BBB- and above) between

1981 and 2016, just 1%

defaulted within 5 years

Of all the companies

we rated “below

investment grade,”

(BB+ and below) 15%

defaulted within 5 years

24

Source: Default, Transition, and Recovery: 2016 Annual Global Corporate Default Study And Rating Transitions, Apr. 13, 2017, S&P Global Fixed Income Research. Table 24.




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Ratings Performance Over Time

Percentage of defaulted corporate issuers by rating category, combined to obtain cumulative default

rates for the 10-year period. Source: Default, Transition, and Recovery: 2016 Annual Global Corporate

Default Study And Rating Transitions, Apr. 13, 2017, S&P Global Fixed Income Research, Table 24. 25

0,72% 0,77% 1,41% 3,76%

13,33%

25,43%

51,03%

0

0

1/5

2/7

2/5

1/2

3/5

AAA AA A BBB BB B CCC/C




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Global Default Rate By Ratings Category

Percentage of defaulted corporate issuers by rating category, combined to obtain cumulative default rates for the 20-year period. Source: Default, Transition, and Recovery: 2016 Annual Global Corporate

Default Study And Rating Transitions, Apr. 13, 2017, S&P Global Fixed Income Research, Chart 4. 26

Time Horizon in Years

Global Corporate Issuers Average Cumulative Default Rates By Rating (1981-2016)

AAA

AA

A

BBB

BB

B

CCC/C

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What Are Some Ratings Solutions?




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We recognize our customers’ time is precious and their workflow is gaining in complexity. Issuers expect simple solutions

which can help them mitigate risks and enhance efficiencies while taking care of their bottom line. Our goal is to help issuers

make decisions with conviction so that they may secure the investment needed for them to grow and prosper. Here’s how:

Ratings Solutions: Helping Issuers Make Decisions with Conviction

Ratings360™

Our latest digital platform which brings together a unique combination

of credit ratings, risk research and critical insights to help issuers stay

informed, plan ahead and make timely decisions with conviction.

Core capabilities allows issuers to:

28

Ratings

Quickly and easily view information related

to their rating(s) in one convenient location

Peers

Create a custom peer portfolio and

benchmark ratings, scores and financial

data against competitors

Suppliers

View public ratings, ratings history, and

ratings articles on suppliers

Economic Research

Probe into economic data for 90+ countries and

views from our economists on key credit factors

affecting businesses globally

Investor Sentiment

Access commentary on a particular sector so that

they can better align their strategic initiatives to meet

investor needs

Product Solutions

Enter in requirements and see them matched with a

potential Ratings solution.

AA

Watch the Ratings360™ demo video at spglobalratings360.com




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Green Bond issuance skyrocketed in 2017 for a 5th year running to $155 billion, up from a mere $13 billion in 2013*.

2018 is likely to continue on a similar trajectory as long-term investors are recognizing the threat from greenhouse gases

and are diversifying portfolios away from carbon-based investment. Many are starting to see that managing environmental

exposure may be more than risk management; it may be good for business.

Why ‘go green’?

3 reasons to ‘go green’ with S&P Global Ratings. Our Green Evaluation is an asset-level environmental credential which…

For more information please visit spratings.com/greenevaluation

Ratings Solutions: Green Evaluation

*According to Climate Bonds Initiative

Potential to diversify

your investor base

Potential to enjoy

long-term pricing

advantages

Internally benchmark

your green

performance y-o-y

Send a strong, pro-active

message to stakeholders

...builds upon today’s existing frameworks of governance and transparency (e.g. Green Bond Principles) and

considers approaches for climate resilience and environmental impact.

…can be applied to any type of financing, whether it is labeled or unlabeled.

…can be applied to 100% or a portion of the financing transaction if linked to environmentally beneficial projects.

01

02

03

29

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Economic Outlook For Georgia: A Positive Story




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Economic Outlook For Georgia: A Positive Story

31

• We forecast growth at 4% in 2018 accelerating to 4.7% by 2019 supported by accommodating foreign trade conditions.

• Although diversifying the economy is a long and difficult task, we see upside potential in Georgia’s tourism, agriculture and electricity sectors

• Banking system stability and supervision compares favourably to other sovereigns in the region

• Focus on further integration with the EU and the recent signing of the IMF program should support reform efforts

Source: « Government of Georgia 'BB-/B' Ratings Affirmed; Outlook Stable» - May, 4, 2018




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Government of Georgia: Credit Ratings Overview

32

Government of Georgia – Ratings History

Date Long-Term FC

and LC Ratings

Outlook /

CreditWatch

Nov. 22, 2011 BB- Stable

Mar. 29, 2011 B+ Positive

Apr. 12, 2010 B+ Stable

Sep. 25, 2008 B Stable

Aug. 08, 2008 B+ Watch Negative

May. 05, 2008 B+ Stable

Oct. 08, 2007 B+ Positive

Nov. 21, 2006 B+ Stable

Dec. 06, 2005 B+ Positive

Latest Publication: (04-May-2018)

“Government of Georgia 'BB-/B' Ratings Affirmed; Outlook Stable ”

Source: « Sovereign Ratings History» - May 10, 2018

Institutional

Economic

External

Fiscal

Debt

Monetary

Weakness

Strength

Neutral

Rating score snapshot




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Comparative Strengths And Weaknesses: The Details

33

Weaknesses:

• Per capita income levels are low

• Balance of payments risks

• Dollarization is high hampering the effectiveness of monetary policy

Strengths:

• Institutional arrangements and policy

• Floating currency

• Low government debt in an international context




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34

Rating score snapshot - Comparison

Source: « Sovereign Ratings Score Snapshot » - May, 4, 2018

Country

Sovereign

Foreign-

Currency

Ratings

Last Rating

Action Date

Institutional

Assessment

Economic

Assessm

ent

External

Assessme

nt

Fiscal

Assessment:

Performance

Fiscal

Assess-

ment: Debt

Monetary

Assessment

Saudi Arabia A-/Stable/A-2 06/04/2018 4 4 1 3 1 4

Russia BBB-/Stable/A-

3 24/02/2018 5 5 1 4 1 3

Azerbaijan BB+/Stable/B 27/01/2018 5 5 3 1 1 5

Croatia BB+/Stable/B 24/03/2018 4 4 2 2 5 4

South Africa BB/Stable/B 25/11/2017 4 5 4 5 5 2

Georgia BB-/Stable/B 04/05/2018 4 5 5 3 2 4

Brazil BB-/Stable/B 12/01/2018 4 5 3 6 6 3

Montenegro B+/Stable/B 17/03/2018 4 4 6 3 5 6




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35

Institutional Settings And Policy

Country

Sovereign

Foreign-

Currency

Ratings

Last Rating

Action Date

Institutional

Assessment Rationale

Saudi Arabia A-/Stable/A-2 06/04/2018 4

We expect that the key parameters of Saudi's

institutional framework will remain steady through . The

government is implementing a series of reforms [..]

Russia BBB-

/Stable/A-3 24/02/2018 5

The sovereign's track record of addressing structural

impediments to growth is limited, reflecting Russia's

institutional weaknesses.

Azerbaijan BB+/Stable/B 27/01/2018 5

Azerbaijan's institutional arrangements remain weak

and we expect limited progress on the structural reform

front in the medium term.

Croatia BB+/Stable/B 24/03/2018 4 Gradual progress of structural reforms helps safeguard

the durability of economic recovery

South Africa BB/Stable/B 25/11/2017 4

In light of the structural and institutional challenges any

new leader will require time to revive South Africa's

economic prospects, as well as strong backing from all

of the electorate.

Georgia BB-/Stable/B 04/05/2018 4 Georgia's institutional settings remain favorable in the

context of the region.

Brazil BB-/Stable/B 12/01/2018 4 The weakening of our institutional assessment of Brazil

reflects slower-than-expected progress. ..]

Montenegro B+/Stable/B 17/03/2018 4 Comparatively strong institutional settings in a regional

context




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36

Fiscal Settings And External Performance

Country

Sovereign

Foreign-

Currency

Ratings

External

Assess-

ment

Current

Account

Balance /

GDP (%)*

Narrow Net

External

Debt / CAR

(%)*

Fiscal

Assessment:

Performance

Fiscal

Assess-

ment: Debt

GG

Balance /

GDP (%)*

Net GG

Debt / GDP

(%)*

Saudi

Arabia A-/Stable/A-2 1 2.2 -201.7 3 1 -7.8 -81.1

Russia BBB-/Stable/A-

3 1 2.6 -48.9 4 1 -1.5 44.8

Azerbaijan BB+/Stable/B 3 2.9 1 1 -1.5 -30.5

Croatia BB+/Stable/B 2 4.6 38.7 2 5 0.6 72.9

South

Africa BB/Stable/B 4 -2.3 41.7 5 5 -4.4 49.7

Georgia BB-/Stable/B 5 -8.6 97.4 3 2 -3.2 39.7

Brazil BB-/Stable/B 3 -0.4 -7.1 6 6 -8.3 59.6

Montenegro B+/Stable/B 6 18.8 175.9 3 5 -5.5 62.9


« Sovereign Risk Indicators » – April, 10 2018




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37

Georgia in comparison with other countries: Monetary Policy

Country

Sovereign Foreign-

Currency Ratings

Last Rating Action

Date Monetary

Assessment

Saudi Arabia A-/Stable/A-2 06/04/2018 4

Russia BBB-/Stable/A-3 24/02/2018 3

Azerbaijan BB+/Stable/B 27/01/2018 5

Croatia BB+/Stable/B 24/03/2018 4

South Africa BB/Stable/B 25/11/2017 2

Georgia BB-/Stable/B 04/05/2018 4

Brazil BB-/Stable/B 12/01/2018 3

Montenegro B+/Stable/B 17/03/2018 6





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38

But Difference In Per Capita Income Levels Is Very Substantial…

Country

Sovereign

Foreign-

Currency

Ratings

Last Rating

Action Date

Economic

Assessment GDP per capita

(US$)

Saudi Arabia A-/Stable/A-2 06/04/2018 4 21,851.45

Russia BBB-/Stable/A-3 24/02/2018 5 11,176.90

Azerbaijan BB+/Stable/B 27/01/2018 5 4,605.99

Croatia BB+/Stable/B 24/03/2018 4 15,349.74

South Africa BB/Stable/B 25/11/2017 5 7,218.09

Georgia BB-/Stable/B 04/05/2018 5 4,258.28

Brazil BB-/Stable/B 12/01/2018 5 10,046.18

Montenegro B+/Stable/B 17/03/2018 4 9,114.86


« Sovereign Risk Indicators » – April, 10 2018




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39

Income Levels: Historic Evolution

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Saudi Arabia Russia Azerbaijan Croatia

South Africa Georgia Brazil Montenegro

Sources: World Bank Database, Sovereign Risk Indicators http://www.spratings.com/sri/

GDP per capita (000s $)

http://www.spratings.com/sri/






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40

Summary of economic forecast for Georgia

2015 2016 2017 2018 2019 2020 2021

ECONOMIC INDICATORS (%)

GDP per capita (000s $) 3.8 3.9 4.1 4.3 4.5 4.7 4.9

Real GDP growth 2.9 2.8 5 4.5 4 4 4

EXTERNAL INDICATORS (%)

Current account balance/GDP -12.1 -12.9 -8.6 -8.7 -8.3 -7.7 -7

Net FDI/GDP 9.6 8.3 10.5 8 7 7 7

Narrow net external debt/CARs 99.6 110.5 97.4 92.5 86.1 82.4 77.6

FISCAL INDICATORS (%, General

government)

Balance/GDP -2.5 -2.8 -3.2 -2.7 -2.5 -2.5 -2.5

Debt/GDP 41.4 44.4 44.6 44.5 45.6 46.4 45.6

Net debt/GDP 37.1 40.1 39.7 40 41.4 42.6 42

MONETARY INDICATORS (%)

CPI growth 4 2.1 6 3.5 3 3 3

Exchange rate, year-end (GEL/USD) 2.39 2.65 2.59 2.6 2.7 2.8 2.8

Source: « Government of Georgia 'BB-/B' Ratings Affirmed; Outlook Stable» - May, 4, 2018

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