Tensions have been rising in recent months between Israel's rating agencies and public companies. In the past year, Standard & Poor's Maalot Ltd. has downgraded scores of companies, sometimes despite heavy pressure from them not to do so.
The downgrade have been partly due to the economic crisis, and partly because of the sharp criticism leveled at the rating companies for over-optimism during the boom years. The optimism was seen in the high ratings for heavily leveraged and high-risk companies.
The criticism and changed market climate has made Maalot more conservative, perhaps overly so, as far as some companies are concerned. Delek Group Ltd. (TASE: DLEKG) claims that Maalot's downgrade of the company was due to excessive conservatism, while Olimpia Real Estate Holdings Ltd. (TASE: OLMP) thinks that Maalot was too strict.
One institutional investor says, "The ratings companies did not wake up in time, and they're apparently now overshooting in the other direction, becoming stricter, and in some cases, maybe too strict."
For companies, a rating downgrade is more than just a blow to their reputation. A downgrade makes it harder to recycle debt, because each lower rating level incurs a higher interest rate, if a company is able to raise capital at all. In the present credit crunch era, every increase in financing costs is liable to become critical, which might explain some companies' harsh responses.
Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2009
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