New rating agency approval shores up credit confidence

September 28, 2023 | 13:00
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Vietnam’s corporate bond market is set for a transformative leap with the entrance of a new credit rating agency, paving the way for renewed confidence and alignment with global standards.
New rating agency approval shores up credit confidence
New rating agency approval shores up credit confidence, Photo: Le Toan

The Ministry of Finance (MoF) last week certified VIS Rating, enabling its operations as a credit rating agency. Backed by global giant Moody’s and top Vietnamese financial entities, the agency emerged from an initiative by the Vietnam Bond Market Association.

Starting from October 4, VIS Rating intends to offer high-quality credit rating services to domestic issuers, aiming to meet the demands of investors, issuers, and market players. CEO Tran Le Minh said it aspires to be recognised for reliability and top-tier credit services in Vietnam.

Since its inception in 2021, VIS Rating has harnessed Moody’s expertise to develop methodologies, recruit elite personnel, and produce substantial research on the corporate bond scene.

Wendy Cheong, regional head for Asia-Pacific at Moody’s Investor Service said, “VIS Rating extends Moody’s footprint in Asia-Pacific and embodies the premier services we offer in Vietnam. Our goal is to infuse global best practices and enhance VIS Rating’s potential.”

As Vietnam’s bond market expands, credit ratings will become crucial for capital access, strategy formulation, and ensuring investor trust during market shifts.

Moody’s Singapore stands as the major shareholder of VIS Rating, holding a 49 per cent stake. The other founding shareholders include ACB Securities, Dragon Capital Finance, VNDirect Securities, and two others, each holding 10.2 per cent.

Beyond VIS, FiinGroup remains active with a number of major clients. Its brand FiinRatings in Vietnam has also carved out a unique position in the market, anchored by its 15-year legacy in data analysis and independent research, further bolstered by the support of S&P and the Asian Development Bank.

In mid-September, it launched Bond Portal, providing insights into the corporate bond market and equipping investors with analytical tools.

FiinGroup chairman Nguyen Quang Thuan highlighted the growing necessity of credit ratings, not only in addressing the current issues of Vietnam’s corporate bond market, but also in shaping the growth trajectory of the banking sector in line with international norms.

“Beyond mere real estate coefficients, applying credit ratings for risk management is vital,” Thuan said, citing the State Bank of Vietnam’s move towards adopting credit risk coefficients rather than solely relying on property-related coefficients.

He believes that a wider acceptance of credit ratings would significantly foster the development of institutional investment infrastructures such as insurance funds, mutual funds, and bond funds, making the market more attractive to foreign investors.

“For instance, insurance firms or pension funds should predominantly allocate their assets to investment-grade bonds or debt instruments, only allowing a small portion for speculative-grade products,” he said.

Drawing a parallel with international practices, Thuan highlighted how countries like Thailand provide “deemed approval” for high-rated public bond offerings, alleviating regulatory clearances.

He also pointed to the Indian government’s stipulation in March this year, necessitating contractors bidding for motorway projects to possess a minimum BBB rating, thus ensuring project continuity and adherence to schedules.

Thuan also tackled concerns regarding why independent organisations were needed for credit ratings, when banks and securities firms could potentially undertake this role. “Independence and market-wide consistency are pivotal. Advisers or bondholders might find it challenging to offer impartial assessments when trading those very products,” Thuan said.

On the topic of FiinRatings competing with VIS Rating, he said that such competition was beneficial.

“The market benefits from multiple entities. It ensures choices for businesses, investors, and policy solutions for regulators. This is a complex service. Collaborating with a skilled entity accelerates the growth of Vietnam’s capital market and the nascent credit rating sector,” he said.

However, citing lessons from other capital markets, he also cautioned Vietnam against licensing a glut of credit rating agencies, pointing to pitfalls like rating shopping, as witnessed in China.

Vo Thanh Hung, Deputy Minister of Finance said, “Although credit channels hold significant weight, the stature of securities and bond markets is rising. When observing the scale, they seem almost parallel. Especially the corporate bond segment, which has weathered the notable market fluctuations well,” Hung said.

In a bid to navigate these evolving terrains, the MoF has acted swiftly. “We’ve initiated refinements in the legal segment, and dialogues have been established between businesses and potential investors, aiming to disseminate clear information and allay market fears,” Hung added. “July saw the inauguration of a distinct trading channel for corporate bonds. Presently, there are over 1,600 such bonds actively traded,” he said.

Moody’s launches Vietnam-based credit rating agency Moody’s launches Vietnam-based credit rating agency

On September 19, Moody’s Corporation announced that it had launched its credit rating agency in Vietnam in a collaboration with local financial institutions.

By Le Luu

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