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Corporate credit ratings: a passport for integration

Friday 14, 02 2020
In developed countries, corporate credit rating is a popular activity but in Vietnam, this is still quite new.
Corporate credit ratings: a passport for integration

Currently, not many domestic enterprises use the service of credit ratings while this is a "passport" for the internationalization of business brands in particular and integration in general.

The case of PVI

PetroVietnam Insurance Joint Stock Corporation (PVI) has officially announced its corporate credit rating. Accordingly, PVI has been rated B + (strong capacity) by AMBest, which is one of the most prestigious credit rating agencies in the world and is recognized by the US Securities and Exchange Commission. Credit rating for the issuer of this business reached the level of BBB - (maintaining the ability to make good financial commitments). A.M.Best has more than 100 years of experience, providing rating services for about 3,500 insurance companies in 65 countries. A.M.Best's rating results are considered a very important reference tool for customers and investors before making relevant decisions. Thus, the rating results of PVI have been highly appreciated.

From the analytical perspective, both of the above ratings are considered to be positive, meaning that if the financial market continues to be favorable, PVI may get a higher rating. Dr. Roger Sellek, A.M.Best CEO said that this is the "passport" for the internationalization of PVI's brand. Simultaneously with this result, PVI has become the first enterprise in Vietnam's financial insurance field to be rated by an international credit rating agency.

Credit rating is increasingly important

According to another "giant" in this field, Standards & Poor (USA), credit ratings are current assessments on risks, credit quality, capabilities of entities (enterprises), etc. in meeting the financial obligations and goals fully and on time. While according to Moody's, credit ratings are assessments of the financial quality of entities based on basic credit analysis and illustrated by the symbol system from AAA to C. In other words, this is an overall qualitative and quantitative viewpoint of an independent organization on the business performance and financial strength of a company on the basis of assessments of the operation process, business portfolio and balance sheet compared with the international quality and quantity standards (of the rating agency). Credit rating agencies also consider the development commitments of the business in all aspects.

The need for corporate credit rating is clear. First of all, on the business side, credit rating helps companies expand domestic and foreign capital markets, reducing their dependence on bank loans, and at the same time, ensuring the stability of funding for the company. Highly rated companies can maintain capital in almost every situation, even when the capital market is adversely volatile. The higher the credit rating, the lower the interest rate. Investors are willing to accept a lower interest rate for a safer partner. As for banks, this is the basis for credit management to limit risks and classify debts as well as set aside risk provisions, aiming to maximize profits.

Credit rating is becoming increasingly important in the financial sector. According to economic experts, on the one hand, if there is no domestic credit rating company, Vietnamese businesses must rely on foreign rating companies when issuing bonds in the market. On the other hand, and more importantly, this is the basic information for foreign investors to say "no" or "yes" before making an investment decision.

Vision is really needed

Corporate credit ratings: a passport for integration

As for the case of PVI, the credit rating of B+ (strong financial capacity) is assessed to be equivalent to the BBB (reliable financial capacity) of Standard & Poors (many countries have officially agreed on the conversion of the rating system of this financial rating organization). On this basis, PVI has set a target of rapidly expanding its operations in the international market, restructuring its business according to international standards, continuing to seek reputable foreign strategic shareholders and at the same time listing its shares on foreign stock exchanges.

However, in fact, a good rating is not a gift. Enterprises that want to achieve it must have a strategic vision and must make efforts. For example, PVI had spent 14 years "preparing" and 2 years really "starting" to do. Even when the company started using the credit rating service, it had to anticipate the risk of not being recognized or not highly rated. But most importantly, the process of preparing for the credit rating will support the business to change the management system according to international standards, which will improve competitiveness and professionalism.

Credit rating agency in Vietnam

So far, there have been a number of large businesses having conducted rating reviews. For example, Vietnam's "giant banks" such as Asian Development Bank, Vietnam International Bank, Techcombank, Bank for Investment and Development of Vietnam, etc. have been rated by Moody's. These banks are rated on the basis of financial strength, profitability, liquidity ratios, credit risk management and capital adequacy.

For small and medium-sized enterprises operating in other fields, although these enterprises do not actively use credit rating services, foreign investors want to conduct cooperation activities with them can refer to VietnamCredit.

VietnamCredit is an independent credit rating agency in Vietnam, which can provide foreign investors with the most comprehensive information about as well as the most objective comments on a Vietnamese business at request.

>> CREDIT RATINGS: Methodology and Reality


Henry Tran - VietnamCredit

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