The rating methodology can be downloaded here.

The update provides increased transparency and a detailed presentation of Scope’s analytical approach for assigning credit ratings to government related entities (GREs). The GRE Rating Methodology continues to be based on a qualitative, principles-based ‘segmentation-approach’ to account for the wide variety of entities and organisations, varying jurisdictions and resulting different relationships of GREs with their respective public sponsors.

Methodology highlights

Scope’s approach starts with the analysis of the strength of the relationship between the GRE and its public sponsor. Based on the GRE’s level of integration with the sponsor, Scope then chooses either the ‘Top-Down’ or ‘Bottom-Up’ approach to determine the primary driver of the GRE’s rating.

The ‘Top-Down’ approach takes the public sponsor’s rating as the starting point and then applies indicative notching based on Scope’s assessment of i) the ‘control and ordinary government support’ and ii) the ‘likelihood of exceptional support’ for the GRE.

Scope’s ‘Bottom-Up’ approach starts with the assessment of the GRE’s stand-alone credit quality, and then, applies credit uplift factors. The extent of the upward notching is based on Scope’s assessment of i) the government’s ‘capacity to provide a credit uplift’, and ii) the government’s ‘willingness to provide support’.

Under both approaches, in case of an explicit guarantee covering all, or most of the GRE’s debt obligations, Scope will align the GRE’s rating with that of the public sponsor.

In a third step, Scope performs a supplementary analysis which can have credit-positive or negative implications for the final rating or no implications at all. This can include an assessment of the fundamentals of the GRE (under the ‘Top-Down’ approach) and the risk of potential negative interventions by the government (under both approaches).

Summary of the key changes

• The definition of a government related entity has been broadened to include all entities whose credit quality is materially tied to a public sponsor.
• Introduction of the definition of a public sponsor and allow for treatment of multiple sponsors to provide greater clarity, allow GRE ratings with multiple sponsors, and expand Scope’s rateable universe.
• Changes to qualitative scorecard structures, assessments and mechanisms to enhance analytical rigour and introduce qualitative assessment guidance tables to strengthen transparency.
• Introduce section on environmental, social and governance considerations.
• Additional editorial changes.

The update to the Government Related Entities Rating Methodology has no implications for existing ratings assigned by Scope.