December 2003 Notched-up ratingsdisplayhighstability credentials inlendingtosubsidiaries. and forinvestorslenders,who setstorebytheparentcompany's opportunity toleverageonthestrength ofastrongerparentorgroup, this isanencouragingindicator forbothissuers,whohavethe to asubsidiaryoranaffiliatedentity.Moreover,inCRISIL'sopinion, adopted inassessingthedegreeofparentorgroupsupportassignable the robustnessofitscriteriaandholisticframeworkthatit has According toCRISIL,theobservedratingbehaviourdemonstrates behaviour iscomparabletothatofnon-notched-upratings. single incidenceofdefault.Moreover,intermsstability, their up forparentsupportinthelasttwoyearshavenotwitnessed a An in-housestudyshowsthatCRISIL'sratingshavebeennotched- Volume I-No.15 Insight R. [email protected] upward ordownwardmovement evenwhenitsstand-alonecredit parent's creditprofile.Therating ofasubsidiarycouldwitnessan credit ratinghasbeenaffectedprimarily becauseofachangeinthe CRISIL has,infact,observedmany instanceswhereasubsidiary's performance ofthesubsidiary. between theparentandsubsidiarythantostand-alone parent company'screditworthinessandtheintensityoflinkages and stabilityofnotched-upratingsinmostcasesaresensitiveto the performance andcreditprofileisarelevantfactor.Butthebehaviour As inmostratings,notched-upratingstoo,theissuingentity's own Parent ratingisthekeydriver ratings. Thelistofnotched-upratingsisgiveninTable 1. notched-up ratingsiscomparablewiththoseofthenon-notched-up in thesamecategory.Infact,onanoverallbasis,stabilityof This alsocompareswellwiththestabilityofnon-notched-upratings 'AA' categoryratingsexhibited93%stabilityduringthesameperiod. of non-notched-upratingsinthesamecategory.Similarly,notched-up 'AAA' attheendofoneyear,whichiscomparablewithbehaviour This meansthat94%ofthenotched-up'AAA'ratingsremainedat notched-up 'AAA'ratingsexhibited94%averageone-yearstability. from January2001to2003.Intermsofeachratingcategory, house studyofthestabilitysuchratingsovertwo-yearperiod group-supported ratingsinmid-1999.Itrecentlycarriedoutanin- CRISIL evolveditscomprehensivenotch-upcriteriaforparentand Notched-up ratingsmarkedbyrobuststability that induceaparenttoextendsupport. objectively assessedthroughasetofeconomicandmoralfactors its subsidiaryonanongoingbasisaswellintimesofdistress.Thisis framework attemptstocapturetheincentivesforaparentsupport a creditperspective,CRISILemployscomprehensiveframework.This group companies.To capturethebenefitsthatflowtoacompanyfrom lineage andtherelationshipthatitenjoyswithitsparentorother dependent onitsownbusinessandfinancialstrengthsbutalso practical experiencethatanentity'screditworthinessisnotonly CRISIL notches-upratingsforparent/groupsupportbasedonthe 1 See thearticle, ‘Notching-up forParentSupport’ inCRISIL’s Insight publishedinAugust 1999. December 2003 other ratingcategoriesontheCRISIL scale. rating ontheCRISILscale.Asimilar mappinghasbeenevolvedfor 'A' andhigherthanontheS&P scalewouldtranslatetoa'AAA' and transitionstatistics.According tothecurrentmapping,aratingof mappings arefine-tunedandupdatedperiodicallybasedondefault on theS&PscaleandcomparableratesCRISILscale.These scale. Themappingisprimarilybasedondefaultandtransition rates CRISIL usesahybridapproachtomapS&P'sratingscaleits own parent, CRISILconsidersStandard&Poor's(S&P)ratingoftheparent. the same.However,toassesscreditworthinessofamultinational company, thebasicapproachofnotching-upforparentageremains Irrespective ofwhethertheparentisadomesticormultinational Translating internationalratingsforassessingparentsupport: notching-up isgiveninExhibit1. subsidiary oraffiliatecompany.Thelistoffactorsconsideredfor expects severalownerstorespondadistresssituationintheir parameters usedstemfromthedifferentialmannerinwhichCRISIL underlying principleiscommon,thedifferencesinassessment is appliedwhileevaluatingtheissuer'screditprofile.While (government ofIndiaandstategovernments).Therelevantcriterion linkages, grouplinkagesandwiththegovernment CRISIL hasdevelopedseparateratingcriteriaforparent-subsidiary profile. to augmentitsbusinesspositionand/orimprovefinancialrisk product andmarketingassistance.Suchsupporthelpsthesubsidiary such ascapitalinfusion,managerialandoperationalinputs Typically, theparentorgroupextendsbusinessandfinancialsupport stepping intoprovidesupporttheirsubsidiarieswhenneed. assigning therating,CRISILhasobservedmanyparentcompanies criteria fornotching-upratings CRISIL wasthefirstratingagencyinIndiatodevelopandpublish Framework forassessingsupport final rating. is oneofthecrucialelementsthathasabearingonsubsidiary's profile hasnotundergoneachange.Thisisbecausetheparentrating 1 .Inlinewithitsexpectationswhile necessary, CRISILalsodirectlydiscusseswiththeinternationalparent Indian subsidiarytomeetitsdebtobligationsontime.Where parent becomesessentialincertaincircumstancesenablingits necessity. Thisaspectiscriticalastimelyinfusionoffundsbythe multinational companiesinbringingfundsintoIndiatimesof CRISIL alsolooksattheregulatoryissuesthatcouldconstrain Apart fromassessingthecreditprofileofmultinationalparents,

Statedpostureofthegovernment • Publicperceptionofsovereign backing • Dominoeffect • Politicalimplicationsof defaultbytheentity • Policy-basedinstitutionshavingveryadverse impactofdefault Moralobligations/Implications ofdefault • Strategic importanceoftheentitytogovernment Limitedpolicyrolebutveryadverseimpactofdefault Policy role Key FactorsConsideredWhileAssessingthelikelihoodofGovernment Support default of repercussions no having institutions Policy-based Limited policyroleoftheentitywithnorepercussionsdefault classified asfollows: likely degreeofsupport,whichinturnhasabearingontheextent ofnotching-upthestand-alonerating.Government-owned or economicpressureonthegovernmentifentityweretodefault onitsdebtobligations.Thisclassificationiscriticali While theformerseekstoassesswhetherentityactsas government'spolicytool,thelatterseekstoassesslikely CRISIL classifiestherelationshipbetweengovernmentandgovernment-ownedentitybasedonpolicyroleimplications Notching-up forGovernmentSupport Management'sstatedposture • Domiciliarystatus/commonalityofresources • Sharedname/commonlogoforgroupcompanies • Extentofmanagementcontrol • Moral obligations Economicincentivetotheparent/group • Extentofholdingbytheparent/group • Sizeofinvestmentsbytheparentrelativetoitsbalance sheet sizeanditsotherinvestments • Strategicimportanceofthesubsidiary/relevance entitytothegroup • Economic rationale Key FactorsConsideredWhileNotching-upforParent/GroupSupport future. Besides, theframeworktakesintoaccountinstancesofdemonstratedsupportbyparentinpastanditsstatedposturefo classified intoaspectsthatconstitutetheeconomicrationaleandmoralobligationstoextendsupport,extentofintegrati has animpactonthesupportavailableongoingbasisandintimesofdistress.Byanalysingvariousfactors,which arebr The frameworkmeasurestheextentofintegrationbetweenaparentanditssubsidiaryorgroupcompanies. Exhibit 1 December 2003 Notching-up forParent/GroupSupport criteria, andifrequired,refineitsanalyticalframework. on anongoingbasiskeepevaluatingtheefficacyofnotch-up strength inassessingandcapturingrisks.Nonetheless,CRISILwould The effectivenessofthenotch-upcriteriareflectsCRISIL'sanalytical subsidiary. to assessitsapproachandphilosophytowardssupportingthe n determiningthe moral,political on isassessed. r thesamein entities are integration ofdefault. oadly 2 Outstanding CRISILlong-term, fixeddeposit and short-termratings asofSeptember 2003 opakHmsLmtdFA oprto akCII [AAA/FAAA/P1+] CRISIL — Bank Corporation — — [A+/Stable/A-1] S&P [A/Stable/A-1] S&P FAAA Murugappa group Technologies United Corp. [AA+] [A/Stable/A-1] S&P CRISIL GovernmentofIndia — [A+/Negative/A-1] S&P Inc. Cargill India of Bank Central CibaSpecialtyChemicalsHoldingInc. FAA/P1+ Corporation Bank — Corpbank HomesLimited P1+ [AA-/Stable/A-1+] S&P P1+ AA+ Coal IndiaLimited Bayer AG BankofBaroda FAA- Citicorp MarutiFinanceLimited Government of India P1+ Citicorp Finance(India)Limited Ciba SpecialtyChemicals(India)Limited [FAA+/P1+] CRISIL Finance CompanyLimited AG BASF Government of India [A+/Positive/A-1] S&P Cholamandalam Investment& AA [AAA/FAAA/P1+] Cent BankHomeFinanceLimited CRISIL P1+ P1+ Limited India Paints Berger [A-/Stable/A-2] S&P Carrier AirconLimited Cargill IndiaPrivateLimited Canbank FactorsLimited S.A. Aventis Limited AA+ Auto Bajaj Canara Bank P1+ P1+ BOC IndiaLimited [BBB+/Negative/A-2] S&P AtlasCopcoAB BOB HousingFinanceLimited &S& [AAA/P1+] CRISIL Bharat ElectronicsLimited [AA-/P1+] CRISIL Berger Auto&IndustrialCoatingsLimited FAAA/P1+ AlliedDomecqPLC AsianPaints(India)Limited& Bayer IndiaLimited [AA+/P1+] CRISIL P1+ BASF Industries(Private)Limited FAAA/P1+ BASF IndiaLimited Limited Leyland Ashok Limited Cements Ambuja Gujarat Bank ofIndia P1+ Bank ofBaroda P1+ Bajaj AutoFinanceLimited Aventis PharmaceuticalsLimited AA-/FAA/P1+ P1+ Atlas Copco(India)Limited Associates IndiaFinancialServicesLimited Limited Industries PPG Asian Ashok LeylandFinanceLimited Ambuja CementEasternLimited (India) PrivateLimited Allied DomeqSpirits&Wine Issuer dio opn iie A-P+Smsn&CmayLmtd— Simpson & Company Limited FAA-/P1+ Addison &CompanyLimited December 2003 CRISIL Rating suri ulcPrn/ru/oenetS&PRatingofParentin Parent/Group/Government public in Issuer AAA/FAAA/P1+ AAA/FAAA/P1+ AA/FAA+/P1+ AA/FAA+/P1+ Table 1.Notched-upIssuerRatings AAA/P1+ AAA/P1+ AAA/P1+ AA+/P1+ AA/P1+ oanpublicdomain domain 2 o surnthdu o Outstanding CRISIL / Issuernotchedupfor of O ru L Te & [A/Stable/A-1] S&P BOC GroupPLC(The) oeneto ni — — Government ofIndia Government ofIndia — Government ofIndia PPG Industries Inc. P [A/Negative/A-1] P PPGIndustriesInc. Citigroup Inc. S&P [AA-/Stable/A-1+] S&P [AA-/Stable/A-1+] S&P Citigroup Inc. Citigroup Inc. [AA-/Stable/A-1+] S&P Citigroup Inc. aaaBn RSL [AA+] CRISIL Canara Bank BASF AG S&P [AA-/Stable/A-1+] S&P BASF AG Indian Explosives Limited P1+ Orica Limited S&P [BBB+/Stable/A-2] S&P [AAA/FAAA/P1+] CRISIL — — Orica Limited — ICICIBankLimited — Simpson&CompanyLimited Indian Oil Corporation P1+ P1+ [A+/Stable/A-1] S&P [AAA/P1+] CRISIL GovernmentofIndia A+/FAA-/P1+ P1+ [A/Stable/A-1] S&P [A+/Stable/A-1] S&P Indian OverseasBank Hindustan Lever Limited AA-/FAA/P1+ Hero group Henkel KgaA Indian ExplosivesLimited Indian AluminiumCompanyLimited [A/Stable/A-1] S&P PLC Gas British Limited Pistons India Sara Lee Corp. P1+ Limited Company ICICI Securities&Finance [AAA/Stable/A-1+] S&P P1+ P1+ IBP CompanyLimited [BBB/Negative/A-2] S&P Limited Co. Ricoh Limited Corporation GeneralMotorsAcceptanceCorp. Housing andUrbanDevelopment AAA [AAA/Stable/A-1+] S&P [BBB/Negative/A-2] S&P Hindustan AeronauticsLimited P1+ General Electric Co. [AAA/P1+] CRISIL Hind LeverChemicalsLimited Highway CycleIndustriesLimited P1+ Hero HondaFinleaseLimited Ford Motor Company General Electric Co. P1 GECapitalServicesIndiaLimited Henkel SpicIndiaLimited — Gujarat GasCompanyLimited [BBB+/Stable/A-2] S&P P1+ — Gruh FinanceLimited P1+ Godrej SaraLeeLimited P1+ — P1+ GMAC-TCFC FinanceLimited FAG KugelfischerGeorgSchaferAG AB Electrolux Global Trade FinancePrivateLimited Gestetner (India)Limited — GE PowerControlsIndiaPrivateLimited P1+ Government of India [AA-/Negative/A-1+] S&P GE MotorsIndiaLimited [AA-/Negative/A-1+] S&P Financial Services Limited GovernmentofIndia Dupont(E.I.)DeNemours&Company GE CountrywideConsumer P1+ GE CapitalServicesIndia Deutsche Bank AG Dewan Housing Finance Limited Ford IndiaLimited P1+ P1+ Ford CreditKotakMahindraLimited Limited India FAGBearings AA- FAA- Export ImportBankofIndia Electronics CorporationofIndiaLimited P1+ Electrolux KelvinatorLimited Limited Private (India) DuPont E.I. DHFL VysyaHousingFinanceLimited Deutsche SecuritiesIndiaPrivateLimited Corporation Valley Damodar December 2003 AAA/FAAA/P1+ AAA/FAAA/P1+ AA+/FAAA/P1+ AA/FAA+/P1+ AAA/P1+ GE AAA/P1+ AA/P1+ AA/P1+ A+/P1+ osn eeomn iac RSL [AAA/FAAA/P1+] CRISIL Housing DevelopmentFinance Hindalco Industries Limited CRISIL [AAA/P1+] CRISIL Hindalco IndustriesLimited Ford Motor Credit Co. S&P [BBB/Negative/A-2] S&P Ford MotorCreditCo. oeneto ni — Government ofIndia CorporationLimited — Government ofIndia oeneto ni — Government ofIndia ICI India Limited CRISIL [P1+] CRISIL ICI IndiaLimited Capital Corporation S&P [AAA/Stable/A-1+] S&P Capital Corporation WestLB AG S&P [AA/Negative/A-1+] S&P WestLB AG eogop— Hero group arsCnetoeyLmtdA uuap ru --- [AAA/Stable/A-1+] S&P [AAA/Stable/A-1+] S&P [AAA/Negative/A-1+] S&P Pfizer Murugappa Inc. group — — — NovartisAG Nestle S.A. [AAA/FAAA/P1+] CRISIL A- BharatPetroleumCorporationLimited P1+ GovernmentofIndia — Government of India Government of India P1+ — GovernmentofIndia P1+ P1+ Parrys ConfectioneryLimited AA+ CRISIL Parke-Davis (India)Limited AAA AAA Government of India Oriental BankofCommerce Reserve Bank of India/ Numaligarh Refinery Limited [FAAA] CRISIL Nuclear PowerCorporationofIndia Limited Novartis (India)Limited Larsen & Toubro Limited Neyveli LigniteCorporationLimited AAA Nestle IndiaLimited --- AAA --- [AA-/P1+] S&P[BBB/Stable/A-2] CRISIL National ThermalPowerCorporationLimited Lucas TVS Limited [AA+/P1+] CRISIL Limited Corporation National HydroelectricPower P1+ National HighwaysAuthorityofIndia Sterlite Industries (India) Limited LifeInsuranceCorporationofIndia Electrosteel Castings Limited Rural Development National BankforAgricultureand Degussa AG [A+/Stable/A-1] S&P [AAA/FAAA/P1+] CRISIL FAAA/P1+ Sundaram Finance group [FAAA/P1+] CRISIL AAA/FAAA BharatPetroleumCorporationLimited P1+ Narmada CementCompanyLimited [A/Stable/A-1] S&P P1+ Services Limited Kotak Mahindra Mahindra andFinancial Bank Limited FAA+/P1+ P1+ ING Groep N.V. Madras AluminiumCompanyLimited,The AirProducts&ChemicalsInc. Lucas IndianServiceLimited AA- Mor J.P. Limited Finance Housing LIC P1+ Lanco KalahasthiCastingsLimited Lakshmi GeneralFinanceLimited P1+ Lafarge IndiaPrivateLimited — AA+ P1+ Kotak MahindraCapitalCompanyLimited P1+ Kochi Refineries Limited Johnson &Limited JM MorganStanleySecuritiesPrivateLimited J.P. MorganSecurities(India)PrivateLimited Insilco Limited Government of India INOX Air Products Limited ING VysyaBankLimited Company Limited Infrastructure DevelopmentFinance AA+ (Rating Watch AAA Industrial DevelopmentBankofIndia Indian RailwayFinanceCorporationLimited Indian PetrochemicalsCorporationLimited December 2003 implications)/FAAA/P1+ withdeveloping AAA/FAAA/P1+ AA+/FAAA/P1+ AA/FAA+/P1+ AA/FAA/P1+ AAA/P1+ AAA/P1+ AA-/P1+ aida&Mhnr iie RSL [AA/P1+] CRISIL Mahindra &Limited Reliance Industries Limited CRISIL [AAA/P1+] CRISIL Reliance IndustriesLimited oeneto ni — Government ofIndia oeneto ni — — Government ofIndia Government ofIndia — Government ofIndia ono ono & [AAA/Stable/A-1+] S&P Johnson & ognSalySP [A+/Stable/A-1] S&P Morgan Stanley Lafarge S.A. S&P [BBB/Stable/A-2] S&P Lafarge S.A. a hs o & [A+/Negative/A-1] S&P gan Chase&Co. [AA+/FAAA (RatingWatch with developing implications)/P1+] iaaBn AGvrmn fIda— [BBB+/Negative/A-2] S&P [AA] CRISIL [A+/Negative/A-1] S&P — GovernmentofIndia [P1+] CRISIL Corp. Whirlpool — — — PLC Diageo Limited Industries Pidilite — AA Bank Vijaya group Wockhardt P1+ GovernmentofIndia Murugappa group P1+ Tata group with Watch (Rating A P1+ — FAA AA+/FAAA (under Tatagroup Wockhardt LifeSciencesLimited Whirlpool ofIndiaLimited P1+ — Vinyl Chemicals(India)Limited FAA/P1+ Bank Vijaya [AAA/P1+] CRISIL [AAA] Vibank HousingFinanceLimited CRISIL — [A+/Negative/A-1] S&P BBB/FA- Hero group Union BankofIndia UDV IndiaLimited — Government of Tamil Nadu Tube Investments ofIndiaLimited withdrawal) TI DiamondChainsLimited Limited BSES India of Bank State Corp. Sony Tata Government of YadogawaTamil Limited Nadu Tata Technologies Limited Tata MotorsLimited FA+ P1+ TamilNadu of Government Tata IndustriesLimited [AAA] CRISIL Tata FinanceLimited FAA/P1+ FA+ — Tata BPSolarIndiaLimited [AAA/Stable/A-1+] S&P FA+ (undernoticeof AA Corporation Limited P1+ TamilnaduTransportFinance Development [A/Negative/A-1] S&P — Development CorporationLimited Tamilnadu PowerFinance&Infrastructure State Bank of India Corporation Limited Compagnie de Saint-Gobain S.A. Tamilnadu IndustrialDevelopment PfizerInc. Sunbeam AutoLimited Punjab National Bank ST-BSES CoalWasheriesLimited State BankofIndore P1+ Government Sony IndiaPrivateLimited of India P1+ Small IndustriesDevelopmentBankofIndia Siemens PublicCommunicationNetworksLimited P1+ Siemens Limited P1+ SBI Cards&PaymentServices(P)Limited Saint GobainGlassIndiaLimited AAA Rural ElectrificationCorporationLimited Reckitt Benckiser(India)Limited Rabo IndiaFinancePrivateLimited Power GridCorporationofIndiaLimited Power FinanceCorporationLimited PNB HousingFinanceLimited PNB GiltsLimited Philips IndiaLimited Pfizer Limited December 2003 negative implications) noticeofwithdrawal) AAA/FAAA/P1+ AA/FAA+/P1+ A/AAGvrmn fIda— GovernmentofIndia AA+/FAAA AAA/P1+ AAA/P1+ AAA/P1+ AAA/P1+ AAA/P1+ AP+Tt ru — — Tata group T Tata group AA/P1+ BP PLC AA/P1+ AA/P1+ AA/P1+ AA/P1+ AA/P1+ Koninklijke Philips Electronics N.V. S&P [BBB+/Stable/A-2] S&P Koninklijke PhilipsElectronicsN.V. ujbNtoa ak— Punjab NationalBank ekt ecie L & [A/Stable/A-1] S&P Reckitt BenckiserPLC aoakNdradSP [AAA/Stable/A-1+] S&P Rabobank Nederland oeneto ni — Government ofIndia oeneto ni — Government ofIndia uuap ru — [AA/P1+] CRISIL Murugappa group ata MotorsLimited imn GSP [AA-/Stable/A-1+] S&P Siemens AG imn GSP [AA-/Stable/A-1+] S&P Siemens AG S&P [AA+/Stable/A-1+]