A credit rating service with a difference

Q: Then how do you measure a debtor's source of repayment?

A: In our system, there can be seven sources of repayment. They range - top to bottom - from upfront profit, operational cash flow, receivables, tradable assets, external financing and support, and foreign currency earnings to a sovereign entity's currency issuing capability.

Or, more generally, there are three broad conceptual types. They are the real upfront wealth, future wealth, and virtue wealth. In evaluating each individual case, we measure these factors and look at the shape of their structure.

Q: Are there other features in your way of credit rating?

A: We also consider the size of the market, or in the case of a company, the demand it is to serve, against its ability to actually satisfy the demand.

Q: Can you say your way is more useful than the old way of credit rating? Why?

A: I believe I can say so. First, our theory is more management-focused, and all the risk factors are more systematically taken into consideration in our rating practice.

Second, we are responsible for the creditors because we are more straightforward in identifying for them their likely source of concern.

Third, our method can be used to rate companies that don't have a very long history, even public infrastructure projects that are about to start and don't have a credit history at all.

The last point is very important, I think, for Chinese companies to take part in developmental projects overseas, in what the Chinese government calls "new Silk Road initiatives". They have to avoid projects that are environmentally unsound and, as a result, carry too much financial risk for them to bear.

Contact the writer at edzhang@chinadaily.com.cn.