Securities Brokerages Facing Threat of Bankruptcy

Measuring bankruptcy danger of companies is not easy, especially finance companies whose corporate finance are not declared. These firms usually use items outside the balance sheet. The article author used Z-score of Dr Altman, announced in 1968 to measure the bankruptcy threat of firms.

The coefficient is calculated based on companies’ financial reports prior to the crisis. Other version Z2 is applied on measuring health of service enterprises. (The smaller Z coefficient, the worse the financial situation). Accordingly, Z is more than 2.6, that considered company’s financial situation is safe and not under bankruptcy danger. Z of less than 1.1 means that company may face crisis and Z of between 1.1 and 2.6 is in the grey range.

Since being born, Z coefficient was examined in realty with the accurate forecast of up to 95%, considered in the analyzing time earlier one month against the bankruptcy time and 70% if analyzing time is earlier 2 years.

Applying Z-score on SME’s 2010 audited report showed that Z value of SME Securities Co consecutively declined.

Therefore, till the end of Q3 of 2011, Z coefficient of SME brokerage was slower to the bankruptcy threshold of 1.1. That was the clear alarm on the predicted liquidity loss of SME. The article also considered and analyzed 101 remaining brokers in the member list of Hochiminh Stock Exchange. Till Q2 of 2011, 58 listed firms posted business performance and Q3 of 2011, the figure was only 29 companies.

As a result, 12 of 29 reporters [companies] saw worse business situation compared with 2011 earlier. Especially, some companies in this group are hereafter:

  Bankruptcy threshold: 1.1

ORS is the company facing the highest bankruptcy threat. By late Q3, total short term debts of ORS were 1.235 trillion dong while its equity was only 223 billion dong. Its accumulate loss till Q3 was 6.58 billion dong against 2010’s 28 billion dong profit. Thus, ORS may follow SME to announce bankruptcy.

Also, other firms namely BSC, SHS, VDSC are also closer to the crisis threshold. If they do not have any policy to improve financial status in the coming time, it will be very dangerous.

Looking to the end of 2010, 16 of 102 listed firms were falling in dangerous range of Z-score, notably Asia Securities Co 0.5, Beta Securities 0.6, Tam Nhin Securities -6.4, Hanoi Securities -2.1, Navibank Securities -1.5, Phuong Hoang Securities 0.8, Phu Gia Securities 1.0, Mien Nam Securities -0.5, Rubber Securities 0.2, Vina Securities -1.0, Vietnam Prosperity Securities 0.9, Viet Quoc Securities 0.9, and Saigon Tourist Securities 0.8.

All aforementioned companies did not publicize business date in 2011 so one question was raised whether they can improve financial strength or not.

For instance, Sacombank Securities Co (SBSC)’s Z-score increased from 1.5 in late 2010 to 1.7 in Q2 of 2011 and 2.4 in Q3 of 2011.

Similarly, after cutting brokerage operation and reforming machine, Dong Duong Securities broker’s Z-score was improved from the dangerous range of 0.7 in Q2 to 7.6 in Q3 of 2011. The company accepted to reduce business rather than loss in business.

Clearly, Z-score helps us to see a simpler assessment on the health of securities companies.

In 2012, the Vietnam stock market likely will see strong restructures to create a more solid foundation.