Guarantee Rate

June 28, 2010 (LBO) – Sri Lanka’s RAM Ratings has given a ‘BBB+’ long term financial enhancement rating to Construction Guarantee Fund (CGF) saying it has state backing though vulnerable to the volatility of the industry and has no re-insurance as yet. Guarantees are given without any collateral, by evaluating the contractors’ capabilities against the project requirements.

CGF follows stringent underwriting standards, with guarantees only extended to contractors holding a valid grading with the Institute of Construction Training and Development (ICTAD) with applications vetted by experienced personnel, RAM said.

The majority of contracts are monitored regularly to ensure that project performance is as per specifications.

In the event a contractor lags behind, CGF has the authority to take all necessary actions to minimize claims by ensuring total project performance.

Though premium income has fallen, the funds’ performance has been helped by investment income.

RAM Ratings says the Fund has a conservative investment strategy of maintaining a portfolio solely comprising government securities.

“We view this positively as these are low-risk and highly liquid investments,” RAM Ratings said.

“On the other hand, the lac