Does rating make a difference when a company raises money, in India or abroad?
Credit rating has a direct impact on the cost of borrowing for a company. A higher rating would result in lower interest cost and vice versa. However, a higher rating may also have some indirect costs. In order to maintain a higher rating, the company may have to restrict the amount of debt it takes, to ensure high levels of protection to its debt holders. This may lower the return on equity. Thus, each company has to strike a balance between the two — optimum leverage versus high credit rating. What is the relevance of country ratings to investors? Sovereign ratings do not have any direct relevance for domestic investors who invest within the country and use ratings assigned by domestic credit rating agencies. For trans-national investors, sovereign rating is relevant because most ratings on corporates, banks, etc. in a country would tend to be the same as or lower than the rating on the sovereign. Thus, for instance, the credit rating on People’s Republic of China by S&P (A/Positive)
