Bangkok--11 Jul--Moody's Investors
Moody's Investors Service highlights, in a new report, governance and accounting risks prevalent when investing in fixed-income securities in the emerging markets.
Through a framework of "Red Flags", the report focuses on transparencyconcerns and the general complexities associated with rapidly developingmarkets.
In this edition, the 20-point framework is applied to Chinesenon-financial corporates, wherein recent credit events have seriously de-stabilized investor appetite for paper in this market.
The 20 red flags are grouped under:
- Possible weaknesses in corporate governance
- Riskier or more opaque business models
- Fast-growing business strategies
- Poorer quality of earnings or cash flow
- Concerns over auditors and the quality of financial statements.
"Such a framework adds consistency in approach to challenging and oftennon-transparent situations that are part of the credit decision-makingprocess in new markets" says Elizabeth Allen, a Vice President andSenior Credit Officer for Moody's in Hong Kong, and the author of the report.
"The framework is supplemental to Moody's methodological approach to rating non-financial corporates in the emerging markets, and is aimed at highlighting discreet risks that may warrant further investigation,"Allen continues.
In the specific report for China, Moody's shows that more Red Flags have been triggered among non-property than property-related issuers, and also provides the detail behind the flags each rated entity triggers.
The report further highlights companies that have an unusually largernumber of Red Flags triggered relative to their rated peers and examinesthe causes.
"And although we have initially looked only at mainly high-yield and a few investment-grade issuers in China, we consider that the framework isappropriate for the rest of Asia and other developing markets," says Allen.
he report, entitled "Red Flags for Emerging-Market Companies: A Focus on China", is available at www.moodys.com.