Starting the Rating Process
The process begins with the applicant company’s appeal to be rated. Only the senior management of SAHA A.Ş. is involved in the contract signing stage. Employees are notified after the contract is signed and then they get into contact with the company. The most experienced analyst in the relevant sector is assigned to evaluate the status of the company and to start monitoring. Our analysts possess the expertise usually on one or more sectors and to cover all sub-sectors in the industry.
Meeting with the Management
Meeting with the management occupies an important place in SAHA’s rating process. The purpose of this meeting is to review the company’s main operations, financial plans, management policies and other activities which will have an impact on the rating process. Meetings to be held with management are crucial in order to reach an objective conclusion about the company’s current status and expectations.
Participation
The company is represented by an authorized signatory manager. The signatory should participate to the meetings on issues of strategic importance (initial meetings in general). Company officials should provide detailed information about their business units. External consultants can assist in preparing an effective presentation. Consultants’ assistance in the preparation of the meetings, or their participation to the meetings is purely a decision of the management.
Planning
Meetings with management are usually planned weeks in advance (about 3 weeks) to ensure mutual accordance and to allow sufficient preparation time to our analysts. In some cases (such as extensive document review) additional time might be necessary.
Visits
Visits to the company are vital for SAHA to obtain information about the company’s core business. However, given the timing constraints, most appropriate time for these visits might be during the first phase of the rating process. As mentioned below, such visits are more frequent in the subsequent supervision process.
Preparation to the Meetings
After the rating agreement is signed, the company will be asked the following information and documents. Rating specialists will be ready for the first meeting upon examination of these information and documents.
- External auditor’s report covering the last 2 years.
- Company’s annual and / or interim (extraordinary) annual reports.
- Company’s articles of association.
- Information on dividend distributions for the last 2 years (retrospectively).
- Information on last 2 years’ income and corporate taxes (retrospectively).
- The organizational structure of the company based on legal resolutions and changes that took place in the last 2 years retrospectively.
- The last 2 years of ordinary and extraordinary general shareholders’ meeting minutes (retrospectively).
- Information on new share certificates issued by the company and its subsidiaries.
- Identities of key shareholders (with shares of 10% or more) and creditors.
- Records on sanctions on violation of the shareholders’ rights or other abuse or infraction of rules (including the unsettled cases).
- Declarations on formation and structure of the board of directors and identity and background of the members.
- Information on the external auditor of the company.
- Declarations on business transactions and links in amounts exceeding 10% of the company’s net asset value in the last 2 years retrospectively.
In addition to the information on the company, information about the sector is also useful. Although not mandatory, presentations prepared by the company management can also take place. Such a presentation would be useful in order to ensure the overall layout of the meeting. In cases of an availability of a written presentation, analysts of SAHA should have the chance to review prior to the meeting. Trying to answer all questions at the meetings is not required. If additional information is needed to clarify a few points it can be provided after the meeting. When our analysts analyze the issues discussed at the meetings they will have additional questions anyhow.
Confidentiality
The information provided to SAHA specialists is kept strictly confidential. SAHA employees are under oath and each has signed a confidentiality document. Rating results are disclosed to the public upon the company’s consent, but SAHA discloses only the information which is of public interest. Rating details will not be shared with any other institution, including other departments of SAHA, for any purpose, without prejudice to legal requirements. Flow of information between the rating unit and other departments is prevented.
Meeting Agenda
SAHA seeks to obtain following information and documents in meeting with the company management;
- Status of the sector and prospects
- The division of tasks within the company
- Operational statistics
- Comparison with competitors
- Financial policies and financial performance targets of the management
- Reasons for the different accounting practices, if any
- Market share and operational targets of the management
- Income statement, cash flow statement and balance sheet objectives
- Capital spending plans
- Financing alternatives and contingency accounts
Rating activities of SAHA are not based on management’s opinions about the future or financial predictions of the company. Rather it depends on the conclusion we reach on the overall view of the company. However, the financial estimates of management are valuable information for the rating process and it shows how to cope with the challenges faced by management. Besides, whether the management bases its financial strategies on internal cash flow or external funding is also important.
The meeting may take a day or two. Short and formal presentations by the management will be beneficial.
Rating Committee
A committee of 3 or 5 convenes shortly after the meeting. The sector analyst submits a presentation to the committee. This presentation covers the company’s operations, the sector it operates in, quantitative analysis of the company, comparable statistics, strategic and financial management analysis and the rating proposal.
Once the rating result is determined by the committee, the company is informed of the result and other main supporting items. The company may appeal prior to the disclosure of the rating result by providing new or additional information. When the decision to replace the existing rating is taken, the committee meets again to discuss the new information.
To ensure the integrity and impartiality of the rating process, the identity of the members constituting the rating committee is kept confidential and is not disclosed to the company’s employees.
Supervision
Disclosed ratings are kept under supervision for at least one year. Depending on the company’s request, rating results have the option to be kept under surveillance permanently or for a certain term. Supervision is carried on by the sector analyst involved in the rating process. The company is under obligation to supply all kinds of information and documents and notify SAHA of any new developments or changes.
Our analyst should be periodically in touch with the company on its performance and developments. An updating management meeting would be appropriate upon existence of a recently planned financial activity.
Management meetings are usually planned on an annual basis. These meetings provide analysts with the opinion of management on current developments, to be aware of changes in future plans and allows discussions on professional issues which show different performance than initially expected. Issues which should be given importance to are highlighted by SAHA at the initial meetings.
Meetings should generally take place in the company headquarters. The reasons for this are to get together with management and staff more than once (mostly with employees at the operating level), to get first-hand information on the critical points and to have more opportunity to examine the company departments in depth. Meetings which are to be held at the company headquarters should be planned in advance by taking into consideration the time and location restraints.
Analysts compare the company’s strategies and financial plans and explores why and how they changed. Thus, the company’s foresight and ability to implement these plans are measured. In some cases analysts may encounter different management during the year. In other cases years-long work with a constant management is witnessed. An experienced analyst can easily distinguish the difference between these two.
Changes on Rating Results
Changing conditions may require some re-consideration on rating results. The company will be monitored in this case, followed by a comprehensive analysis, contact with management, and a presentation to the committee. The rating committee evaluates the situation, reaches a decision on revision of the rating result and notifies the company. This will be an all new rating process.