CREDIT ratings are the brainchild of an American who published financial information about railway companies in the United States at the beginning of this century. John Moody published the Manual of Railroad Securities, which laid the groundwork for the ratings that are used today. Mr Moody first started publishing a guide to companies and the securities they issued in 1900. He eventually realised investors had no way of evaluating the risk of a bond and no way of comparing the risk of potential bond investments listed in his manuals. The result was the range of credit assessments now used by Moody's Investors Service. It runs from Aaa for the best credits to C, which refers to penny dreadfuls. Edward Young, head of the Hong Kong-based office of Moody's Asia-Pacific, said: 'In the early years of the 20th century, the US shared certain features that are present in Asia today. 'It was a time of rapid economic growth and tremendous expansion in the American transportation infrastructure - the demands for capital to fund this growth were enormous. 'The equity markets were booming, as were the corporate bond markets.' The ultimate result of Mr Moody's assessments was the current system of credit ratings. Aaa long-term debt rating covers bonds that are generally seen to be of the best quality with the smallest risk and are generally referred to as gilt-edged. 'Interest payments are protected by a large or by an exceptionally stable margin and principal is secure,' the agency said. 'While the various protective elements are likely to change, such changes as can be visualised are most unlikely to impair the fundamentally strong position of such issues.' The same cannot be said of the lowest rating, C. 'Issues so rated can thus be regarded as having extremely poor prospects of ever attaining any real investment standing.' As a general rule, the higher the rating, the lower interest such credits need to pay to creditors. Moody's and its rival, Standard & Poor's, are paid by corporates, utilities, banks, government authorities and governments to look at their books and issue a rating. Moody's currently rates 50 sovereigns. Hong Kong and China are rated A3 for long-term debt, ahead of Greece (Baa3) but behind Iceland (A2).
