Under the sponsorship of the Presidential Office, the Credit Rating of Vietnam Joint Stock Company (CRV) will coordinate with the National Economics University, the Academy of Finance, and the Vietnam Applied Mathematics Society to release the “Vietnam Credit Rating Annual Report 2011.” The report will rate 596 listed companies on the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX).
Dr Nguyen Trong Hoa, Assistant Director of Financial Policy Research Department, the Academy of Finance and Head of CRV Research, provides essential information on this report. Huong Ly reports.
This is the second credit rating report on companies listed on stock exchanges. Could you tell its differences from the report in 2010?
In 2010, basing on audited financial and non-financial indicators of listed firms, and an integrated approach, CRV picked out fundamental indicators for rating. There were nine grades for credit rating of listed companies. The highest grade is AAA (the highest rating for effective-operating company with good financial position, long-term development prospect, powerful financial capacity, good solvency) and the lowest is C (weak, prolonged loss, loss of self-financing, high risk). In 2011, we will add the probability of bankruptcy that a listed company may face. This will be a good source of information for institutional and individual investors to establish portfolios basing the degree of risks they can accept.
How do stock investors benefit from the publicity of the "health" of listed companies?
In the small-scale and illiquid stock market of Vietnam, investors are vulnerable to risks. In the past years, not only individual investors suffered losses but investment funds and foreign financial institutions were also significantly hurt by NAV reductions. In addition, risks on the stock market are higher to investors as price movements of some stocks or even the whole market are driven by a small group of traders who falsify information to trap other investors to make wrongful investments. We research and release a credit rating table of listed companies in order to provide necessary information about the status of issuers for investors. I think this table will be a sign to compare volatile stocks.
Not only being helpful to investors, publicizing the "health" of listed companies also helps banks determine credit decisions and credit limits. Rated companies will know the status of their "health", development prospects and risks they may encounter in the future. The report will also be an important and useful reference channel for the Government, banks, foreign and domestic investors, and businesses themselves.
The stock market is very sensitive to any good or bad information and credit rating. How did listed enterprises react to the 2010 report?
Most businesses responded very positively to our credit rating report. Many foreign banks and organisations used our information to select partners.
Some listed companies disagreed with our ratings and this was normal and unavoidable. For example, in 2010, we rated B for Song Da 8 Joint Stock Company (SD8) and Sai Gon Maritime Joint Stock Co. Ltd (SHC) because they operated ineffectively, had low capacity of self-financing; and had high risk of loss-making. On March 29, 2011, SHC was put under trading supervision by market regulators while SD8 faced a similar fate on HNX on July 8, 2011. Besides, most companies listed on the trading watch-list were rated B because they operated at a loss like ANV (BB), BAS (B), MHC (CCC), CAD (B), VKP (BB), VPK (BB), TYA (B) and VSG (B).
Could you tell what criteria will be used to force rated companies to accept the rating?
We use an integrated approach to rate a listed company. For example, in assessing financial situations, we use 54 audited financial indicators and different methods to filter data to get most important rating criteria. We will get scores and risks for the rated company. Our method is also very popular in developed nations. For nonfinancial indicators, depending on different criteria, we use methods suitable for such criteria. The final rating results were made by a board of top-notch scientists and specialists. Hence, rated companies will have their ratings changed when their financial situations change, or when they enjoy good conditions or fall into bad situations. Our credit rating is the most “complete” about rated businesses.
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