September 18 (SeeNews) - German-based rating agency Scope Ratings is ready to consider the economies of EU applicants in Southeast Europe (SEE) as part of its review of coverage expansion, Giacomo Barisone, managing director of Sovereign and Public Sector Ratings, told SeeNews.
"A Scope credit rating raises the visibility of a nation’s domestic issuers in EU markets and helps advance the development of domestic capital markets. We focus on expansion of coverage in countries in which we could add the most value: in other words, economies with the greatest need for a European partner in the advancement of markets and financial systems, such as in improving Eurobond market access, widening the pool of domestic issuers, and enhancing institutional governance of issuers as they come to market," Barisone told SeeNews in a recent interview.
At present, Scope rates Bulgaria (BBB+/Stable), Croatia (BBB-/Stable), Romania (BBB-/Negative) and Slovenia (A/Stable).
"As we review coverage expansion, SEE economies are under consideration. This includes, as an example, future consideration of EU applicant nations of the region such as North Macedonia, Serbia, Albania and Montenegro," Barisone noted.
Scope is also considering adding companies or financial organisations in SEE to its coverage.The ratings agency does not exclude provision of ratings services for smaller corporate issuers that seek market financing, such as those with annual turnover of less than $100 million (84.4 million euro).
"When we review a country in SEE for sovereign rating assignment, we have in mind the rating of non-sovereign issuers longer term that could bring even greater value to a country’s financial system beyond the sovereign rating itself. This includes ratings assigned to sub-sovereigns, state-owned banks and enterprises, corporates and financial institutions, or structured and project finance transactions," Barisone explained.
He also said that in many cases, supporting a country’s capital markets means fostering greater financial information of local companies and financial institutions with domestic and foreign investors, thereby developing the requisite transparent and liquid securities markets compulsory for such issuers’ sustained market access.
Despite the severe economic slump induced by the coronavirus pandemic, Barisone sees an opportunity in the growing momentum behind the vision for a European rating agency.
"Those in Europe are now more aware that it is crucial to have strong, resilient European financial institutions, particularly at times of economic distress. In this regard, we are encouraged to see the growing realisation of the need for a strong European credit rating agency," he commented.
In evidence of the company's identifiable European identity, former ECB President Jean-Claude Trichet and Germany’s former President Horst Koehler are among those who have joined the Scope Foundation’s Honorary Board.
Just three years after it started public-sector coverage, Scope has the widest EU rating coverage in the sovereign and public sector segment after that of the U.S. agencies Fitch, Moody's and Standard & Poor's. It is expanding coverage for the Sovereign and Public Sector group, assigning ratings currently to 36 countries, with its coverage focused on members of the EU and its neighbours thus far, in addition to sub-sovereign and supranational institutions, including the EU, the European Investment Bank and the European Bank for Reconstruction and Development.
Asked about its key advantages to its US peers, Barisone said Scope has an alternative vision on how best to rate sovereign as well as non-sovereign issuers.
"Our ratings are predicated on a tangibly European perspective, sensitive to the diversity of European economic, financial and institutional systems, and characterised by high transparency in how we rate institutions and by a close interaction between Europe-based rating analysts and the issuers. Our sovereign rating actions have frequently pre-empted those of the US credit rating agencies; in addition, we take a more structural, long-term view in our credit assessments."
Moreover, Scope will soon become the first major credit rating agency to fully integrate environment, social and governance (ESG) factors as a stand-alone pillar in the agency’s sovereign rating methodology, Barisone noted.
"In our view, a credit rating assignment from Scope sends a strong signal to European institutions and investors alike of heightened competition in the rating industry with the inclusion of a European voice," he said.
As the biggest risks to SEE's business environment and investor confidence in the short term, Barisone pointed to questions of governance and confidence-building in public institutions.
"Protests against corruption in Bulgaria, in an echo of the anti-corruption movement in Romania, are evidence of that. Governance issues also extend to the corporate sector, as we have seen in past difficulties experienced by Croatia’s Agrokor and Bulgaria’s Corpbank."
The collapse of Croatia's food-to-retail concern Agrokor, the biggest private concern in the country, in 2017 sent shockwaves across the Western Balkans.
In 2014, Corpbank, Bulgaria's fourth largest lender at the time, was hit by a run on deposits and subsequently collapsed.
Bulgaria and Croatia are, however, among countries that continue to make progress with economic reform, in their cases under ERM II as they prepare to adopt the euro, Barisone said, adding that support for enhancing public financial management and macro-fiscal management is an area that could itself be enhanced with the involvement of an additional rating agency.
($=0.84 euro)