Corporate Credit Ratings: Listed Better than Unlisted

The Credit Information Centre (CIC) under the State Bank of Vietnam (SBV) has recently announced its first official creditworthiness report, assessing 7,791 companies nationwide over a one-year period. Although the survey cannot check all enterprises in the country, the initial analyses and ratings reflect the capacity of several business forms in Vietnam.

 

The rating methods and criteria were based on accounting documents, business operation and corporate credit information (corporate legal work, financial information and credit balance). CIC also consulted economic indices and corporate non-financial information.

 

The ratings are mainly built on debts, operational efficiency, debt collection and asset utility efficiency. The grades are, from low to high: C, CC, CCC, B, BB, BBB, A, AA and AAA. The enterprises rated from BBB to AAA are good. The enterprises rated from BB to CCC are average downward. The enterprises rated AAA have the highest creditworthiness.

According to the request from the State Securities Commission (SSC), in 2006, CIC analysed and rated 72 listed companies on the stock market, based on operation indexes in 2004 and 2005. 67 companies received good creditworthiness grades between BBB to AAA, while the remaining five ranked BB to CCC.

 

Based on economic sectors, foreign listed companies were the most profitable in the report, followed by limited companies, joint stock companies and state-owned enterprises. Notably, the ratings of listed enterprises with good creditworthiness in the following year were higher than the previous year.

 

According to CIC, under the current context of a rapidly expanding stock market, corporate information transparency is imperative. At present, there is no official agency to provide information about issuing companies, including those issuing on the over-the-counter (OTC) market. If there is enough basic information on corporate financial situations and business operations, investors will be able to further analyse the information to reduce risks.

 

The results in the ratings report of eight economic sectors showed companies in services, energy and food processing sectors accounted for the highest percentage of good creditworthiness, with 39 per cent, 38 per cent and 37 per cent rated BBB, AA and AAA, respectively. Companies in the construction sector have the lowest percentage of 20.5 per cent. Companies in other sectors rated good creditworthiness account for around 31 per cent.  The consumer product processing sector obtained the highest percentage of companies with the highest grade of AAA, 4.43 per cent.

 

The profitability of companies under the Ministry of Construction and the Ministry of Transport is rather low. Only 84 per cent of corporations have after-tax profit equalling less than 3 per cent of revenues. The revenue-generating capacity by asset is very low in many corporations. 60 per cent of corporations have a ratio of asset utility below one (a dong of asset generates a revenue of less than one dong.)

 

In terms of investment efficiency and investment risk evaluation, construction and transportation firms have been notorious for defaulting on loans or making interest payments late. 65 per cent of them pay debts at least 150 days late. A large majority of banks’ outstanding debts lies in construction and transport firms.

 

CIC plans to rank more listed companies in the near future, including 20 companies in the fisheries sector, 20 companies in rubber and others in key industries. (Source: SBV)