Promote transparency through credit rating

VCN - The Ministry of Finance is implementing many solutions to form a "culture" of credit rating to improve the transparency and professionalism of enterprises' capital mobilisation activities, heard the Credit Rating Development Workshop held by the Ministry of Finance on November 16.
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Nguyen Thi Thu Hien, General Director of Techcom Securities Company spoke at the seminar. Photo: T.H

Foundation for the “culture” of credit ratings

Speaking at the seminar, Nguyen Hoang Duong, Deputy Director of Finance Department of Banks and Financial Institutions - Ministry of Finance, said credit rating activities play an important role in the development of the financial market in general and bond market in particular. Credit rating agencies contribute to increasing operational efficiency for both supply and demand for investment in the market, helping investors be more aware of their financial capacity and debt repayment capacity as well as risks involved in making investment direction and decisions.

David Gottlieb, Counselor for Economic and Development Cooperation - Australian Embassy also assessed transparency is the core foundation for determining confidence, helping recover the economy more quickly and sustainably. "Currently, Australian businesses say they see huge opportunities in the Vietnamese market, but they want to have better confidence and credit rating is the foundation to increase confidence," David Gottlieb said.

International experience shows the process of establishing credit rating markets in countries goes through several stages issuing legal frameworks for the establishment and operation of credit rating firms and establishment of credit rating firms. Domestic credit ratings together with step by step regulations require organisations to mobilise capital in the market to have credit ratings.

In Vietnam, to promote the development of the corporate bond market and the capital market, the Ministry of Finance has studied and submitted to the Government to issue Decree No. 88/2014/ND-CP dated 26/26. 9/2014 regulations on credit rating services, this is a prerequisite for the establishment of a credit rating market in Vietnam. The Ministry of Finance has also asked the Prime Minister to issue Decision No. 507/QD-TTg dated April 17, 2015 on the planning of credit rating services to 2020 and a vision to 2030.

So far, the Ministry of Finance has issued a certificate of eligibility to provide credit rating services for twoenterprises. However, the provision of credit rating services is still very limited due to alack of regulations on the compulsory use of credit rating services when issuing bonds to the market, while investors are also not in the habit of choosing to invest in corporate bonds with credit ratings.

To promote credit rating activities, the Securities Law 2019, effective from January 1, 2021, already regulates credit rating for corporate bonds issued to the public. A decree guiding the Law on Securities is being submitted to the Government for consideration and promulgation for specifying credit rating cases and implementation roadmap. This regulation is expected to increase the demand for credit rating services, thereby gradually forming a "culture" of credit rating for both individually issued and public issued bondsnot subject to a mandatory credit rating.

Promote market demand

Nguyen Thu Hien, General Director of Techcom Securities Joint Stock Company, said that this is a very necessary step. Hien expressed her wish that Vietnam would soon have credit rating agencies.

"If we let foreign organisations give credit ratings to Vietnamese enterprises, it will take a lot of time, the early presence of domestic credit rating agencies will help the market develop faster," Hien said.

Regarding the market's demand for credit rating activities, Hien said that according to the provisions set out in the draft guidance on the Securities Law, cases where credit rating must be ranked are enterprises with debt/capital ratio of the owner is more than once, the bond issues have volume greater than 500 billion VND or greater than half of the equity of the issuing organisation. Statistics on the floors show that the number of enterprises with debt to equity ratio accounting for more than once is relatively high, about 300-400 companies, this together with the need to issue to the public will make the credit rating market more active in the near future.

Meanwhile, Nguyen QuangThuan, General Director of Fiin Rating, said that the demand for credit rating activities depends on two sides: issuers and investors. Vietnam's corporate bond market has developed quite strongly, as of nine months of 2020, it is about 16.9% of GDP, but 95% of these are issued separately. Meanwhile, when issuing private placements, businesses self-assess and negotiate with each other, so the need for credit ratings only develops when companies issue them to the public.

From the perspective of the management agency, Duong said in the coming time, the Ministry of Finance will work with State management agencies to incorporate into the law the conditions on financial safety, on investment limits associated with credit rating results. Currently the legal regulations only attach to enterprises such as State enterprises, private enterprises andenterprises in the banking and securities sectors, not associated with the level of risk through credit rating. In addition, the Ministry of Finance will also conduct market training activities so that issuers and the investing public can realise the benefits of credit rating, thereby, promoting the issuers to consider using this service in raising their capital.

By Nguyen Hien/ HuuTuc

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