The update to the methodology can be downloaded here.

Methodology highlights

The Government-Related Entities (GRE) Methodology employs a qualitative segmentation approach, allowing it to be used alongside other specific rating criteria to ensure comprehensive assessments. This adaptability is enabling a tailored analysis that considers the unique characteristics and sectorial contexts of each GRE.

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 and determines 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 regular 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 public sponsor’s ‘capacity to provide a credit uplift’, and ii) the public sponsor’s ‘willingness to provide support’.

Under both approaches, in case of an explicit guarantee covering 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

This updated methodology clarifies issuer and debt instrument ratings, differentiates between different debt categories as well as local and foreign currency ratings. It expands the approach to define a public sponsor for GREs controlled by different government levels than their owners.

The update refines the guidance tables for assessing the relationship strength between a GRE and its public sponsor in Qualitative Scorecard 1 (QS1), covering legal status, purpose and activities, shareholder structure, and financial interdependencies.

It also revises the guidance tables for the section to determine the evidence of financial support in Qualitative Scorecard 2 (QS2), detailing variations of financial support.

Adjustments in Qualitative Scorecard 3 (QS 3) improve the application of uplift notching.

Finally, the update introduces conditional use of the equalisation factor for GREs with over 75% debt guaranteed by the public sponsor, provided there are no concerns about payment timeliness or guarantee reduction.