Icra Nepal assigns 'satisfactory' rating to Siddhartha Capital

KATHMANDU:

On the first ever rating of a Nepali mutual fund, Icra Nepal has given a ‘satisfactory’ rating to Siddhartha Capital Ltd — fund manager of Siddhartha Investment Growth Scheme (SIGS-1) — despite its limited scope for investment and risk diversification.

The credit rating agency, Icra Nepal, has assigned Siddhartha Capital an ‘[ICRANP] AMC Quality 3 (AMC3)’ fund management quality rating (FMQR) that indicates adequate assurance on management quality.

Back in January, Securities Board of Nepal had announced mandatory rating of the mutual fund managers and sponsors by credit rating agency before the launch of any mutual fund schemes.

“Our rating, which indicates adequate assurance in the first year of operation, is a positive message for the company and the mutual fund market as well,” said CEO of Siddhartha Capital, Dhurba Timilsina.

Siddhartha Capital that had applied for the approval of its second mutual fund scheme a year ago has already submitted the rating certificate to the regulator.

“We have been informed that Sebon has already examined the prospectus and that we will be granted approval for the new fund offer once the regulator receives the rating,” pointed out Timilsina, adding that they are hoping to get approval by second week of May.

The subsidiary arm of Siddhartha Bank is planning to launch a mutual fund scheme worth Rs 800 million before end of current fiscal.

Sebon had decided to introduce compulsory rating provision for the new mutual funds schemes to ensure that fund managers and sponsors backing the funds worth half a billion rupees of the public are solvent and credible enough.

According to the document released by Icra Nepal, Siddhartha Capital’s rating has factored in the higher growth of the company managed mutual fund scheme — SIGS-1’s Net Asset Value (NAV) in comparison to that of Nepse market index. NAV of SIGS-1 had appreciated by more than 60 per cent between January 2013 and January 2014, while Nepse index surged by 50 per cent during the period.

Icra Nepal has also assigned rating of [ICRANP-IR] BBB to the parent company, Siddhartha Bank Limited, which is considered as moderate-credit-quality and indicates rated entity carries higher than average credit risk.

“However, sustainability of growth and return to investors over longer timeframe remains to be seen, considering the volatility of evolving Nepali stock market and its effects on the underlying equity investments of the scheme,” cautions the report.

The rating has also called attention to the limited scope for investment and risk diversification in the present market. Banks and financial institutions dominate the market and the only instruments the mutual funds invest in are equities.

At present, there are two mutual funds worth Rs 1.25 billion listed at Nepal Stock Exchange (Nepse). Moreover, there are five more mutual fund schemes worth Rs 3.8 billion, including the one of Siddhartha Capital, waiting for approval of regulator.

Fund management quality ratings

[ICRANP] AMC Quality 1 (AMC1):

• Entities rated AMC1 are adjudged to provide the highest assurance on management quality.

[ICRANP] AMC Quality 2 (AMC2):

• Entities rated AMC2 are adjudged to provide high assurance on management quality.

[ICRANP] AMC Quality 3 (AMC3):

• Entities rated AMC3 are adjudged to provide adequate assurance on management quality.

[ICRANP] AMC Quality 4 (AMC4):

• Entities rated AMC4 are adjudged to provide inadequate assurance on management quality.

[ICRANP] AMC Quality 5 (AMC5):

• Entities rated AMC5 are adjudged to provide poor assurance on management quality.

Note: For the quality rating categories 2, 3 and 4, the sign of + (plus) may be appended to the rating symbols to indicate their relative better position within the categories concerned. Source: Icra Nepal

Source: THT