Thuyết trình tổ chức xếp hạng tín nhiệm Debt securities TOPIC: CREDIT RATING AGENCY I. INTRODUCTION 1. Orgin of the concept of credit rating This concept originated in the US in 1909 when the founder of Moody’s Investors Service, John Moody, rated the US Rail Road Bonds. However, the relevance of this concept was realized only after the great depression when investors lost all their money. Lack of symmetric information and high cost of collecting information increased the popularity of credit rating agencies. 2. Definition a. Definition Credit rating: An evaluation of the credit worthiness of a debtor, especially a business (company) or a government. This evaluation is made by a credit rating agency. These are expressed in alphabetical or numerical symbols. Credit Rating Agencies: A company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely interest payments and the likelihood of default. The agencies have brought revolutionany changes in Indian capital market by introducing various innovations.
Credit rating agency Group I II introduction In Vietnam 01 introduction Credit rating The concept originated in the US in 1909 when the founder of Moody’s Investors Service, John Moody, rated the US Rail Road Bonds However, the relevance of this concept was realized only after the great depression when investors lost all their money definition Credit rating An evaluation of the credit worthiness of a debtor, especially a business, company or a government This evaluation is made by a credit rating agency, expressed in alphabetical pr numerical symbols Credit rating agency A company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely interest payment and the likelihood of default The agency have brought revolutionary changes in India capital market by introducing various innovations International agencies meaning Credit rating agency means a body corporate which is engaged in the business of rating securities offered by companies The debt instrument rated by CRAs include government bonds, CDs, minicipal bonds, preferred stock, and collateralized securities, such as mortgage-backed securities and collateralized debt obligations Importance of credit rating use the Investors ratings to assess the risk level and compare the offered rate of return with his E(r) to optimize hish risk-return tradeoff The risk perception of a common investor largely depends on the familiarity with the names of company and what they might know of the company For the3typical investor, it would be difficult to assess all of the financial information available to assign their own risk ratings function Easy to understand information Provide basis for investment Gather information, analyze to An investment rated by a interpret and summarize rating agency enjoys higher confidence from investors complex information in a simple understood manner Healthy discipline on corporate borrowers Public exposure has healthy influence over the management of issuer because of its desire to have a clear image Public policy Once the debt guidelines are rated, it would be easier to formulate public policy guidelines methodology The rating is based on the investigation analysis, study and interpretion of various factors The key factors considered are listed below: ● Business analysis or Company analysis ● Economic analysis ● Financial analysis ● Management evaluation ● Geographical analysis ● Fundamental analysis Issuer rating AAA Highest creditworthiness supported by many excellent factors AA Very high creditworthiness supported by some excellent factors A High creditworthiness supported by a few excellent factors BBB Creditworthiness is sufficient, though some factors require attention in times of major enviromental changes BB Creditworthiness is sufficient for the time being, though some factors require due attention in times of enviromental changes B Creditworthiness is questionable and some factors require constant attention CCC Creditworthiness is highly questionable and a financial obligation of an issuer is likely to default CC All of the financial obligations of an issuer are likely to default D R&I believes that all of the financial obligations of an issuer are in default long-term Issuer rating AAA Highest creditworthiness supported by many excellent factors AA Very high creditworthiness supported by some excellent factors A High creditworthiness supported by a few excellent factors BBB Creditworthiness is sufficient, though some factors require attention in times of major enviromental changes BB Creditworthiness is sufficient for the time being, though some factors require due attention in times of enviromental changes B Creditworthiness is questionable and some factors require constant attention CCC An obligation is in default or is likely to default The obligation in default may not be recovered in full CC An obligation is in default or is likely to default The obligation in default may only be partially recovered D An obligation is in default and may hardly be recovered short-term rating a-1 Certainty of the fulfillment of a short-term obligation is high a-2 Certainty of the fulfillment of a short-term obligation is high, though some factors require attention a-3 Certainty of the fulfillment of a short-term obligation is sufficient for the time being, though some factors require attention in times of major enviromental changes b Certainty of the fulfillment of a short-term obligation is not equal to that of a short-term obligation rated in the “a” categories and some factors require attention c The lowest rating A short-term obligation is in default or is highly likely to default Legal Transaction Degree: 10/VBHN-BTC by the Ministry of Finance, January 18th, 2019 225,509 billion vnd Total value of 364 bonds issued through private placements 9,584 billion vnd Value of 13 plublicly issued bonds billion usd bonds were internationally issued Current situation Despite rapid growth, Vietnam has only eligible credit rating agencies, FiinRatings and SaigonRatings “Vietnamese fixed income markets are only strong on the supply side, not the demand side That’s due to the lack of credit rating agencies to increase efficiency for both supply and demand on the market, helping investors become more aware if financial health, ability to repay debts of issuers, as well as the associated risks” -the Asian development bank (ADB) Current situation Management perspective Credit rating activities in Vietnam was still limited since: 1, There were no regulation of the obligation of rating creditworthiness when issuing bonds 2, Investors weren’t used to investing in bonds with credit ratings Improving trust The Ministry of Finance proposed a law on corporate credit ratings to slowly form a credit rating culture for both private placements and public issued bonds, as well as improving transparency of the bond market From Jan 1st, 2023 onwards, credit rating is required for all large bond issuances; bond issued after being listed and transacted on the market According to SSI Securities, risks associated with corporate bonds are increasing Mr Dinh Trong Thinh, banking & finance expert, said that corporate bonds in recent times, especially from 2020 onwards had had numerous issues; there even were “3 no’s” bonds – no collateral, no ratings, no underwriter, “posing great risks for investors” Stage of credit rating markets Credit rating market Promulgate the legal framework for the establishment and operation of credit rating agencies Establish credit rating agencies establish a number of credit rating agencies in the country and mandate that organizations when raising capital in the market must have a credit rating criticism 1, Credit rating agencies not downgrade companies promptly enough 2, Large corporate rating agencies have been criticized for having too familiar relationship with company management 3, CRA’s have been accused of engaging in heavy-handed “blackmail” tactics criticism 4, Criticism (con’t) Agencies are sometimes accused of oligopolists 5, CRAs have made errors of judgment in rating structured products Thank you for your attention! ● Tran Le Duc An Group ● Nguyen Minh Duc ● Mai Trong Hieu ● Mai Quoc Chinh ● Le Huong Giang ● Nguyen Thi Thu Trang ● Nguyen Viet Anh ● Tran Minh Hoang ● Nguyen Ngoc Dung ● Dao Mai Phuong