Information & Rating

Aman Union Seminar – 4th & 5th of April Information & Rating Presented by Fady Henry, Coface Egypt

Introduction • Why is information important? • How to measure the “quality” of information? • Accuracy • Completeness • Timeliness • Accessibility • Comparability

Information & Risk • Information is one of the most important tools to manage risk • In credit risk management it is essential to better understand our clients and hence a better management of trade relations • Information products in credit risk management includes • Credit / Business Reports • Buyers visits • Country Risk reports • Industry / sectors overview

Information Management in Coface • Realizing the important role of information in better management of risk and credit insurance, Coface has acquired or created affiliates world wide to create, supply, manage information solutions • In addition, Coface has created several IT tools for the purpose of managing its huge database of information (more than 3 million companies world wide) • Coface has also introduced the ‘Easy Number” an ambitious project with aim to uniquely identify companies

Information Management in Coface • Among the main IT tools used and managed by Coface; • ATLAS: the database used internally in Coface to request, access and manage information on companies as well as their credit and insurance history • Cofanet: is a web application allowing both Coface as well as it’s clients to order and access information on companies • ICON: is mainly a production tool for the creation of business/credit reports • All the above applications are interacting with each other allowing proper centralization, dissemination and accessibility of data

What is a Business or Credit Report? • A business/credit report is a report that presents quantitative and qualitative information on a company (a buyer in the credit insurance business) • Business/credit Reports help underwriters and credit controllers to better understand and assess their clients and the environment they operate in order to better assess the risk associated with entering in business with these clients or offering them credit facilities • Business Reports are produced through specialized firms that have the proper knowledge on business environment as well as good networks in certain geographical zones

What is a Business or Credit Report? • Methodology used to produce a business/credit report varies from one country to another • In developed countries like France and majority of European countries, production of credit reports is partially automated; for example, Coface in France has linked its database with governmental databases allowing automatic and an ongoing data feed of companies’ information, financial data, etc… this basic data is then enhanced and enriched through personal contact with the company • In less developed countries, such as the Middle East, Africa and some Asian countries, most of production process of credit reports is done manually through a direct contact with the company being investigated as well as manual research on secondary data that might be published on this company

Sources & Structure of the French DB PRESS National Regional COMPANY STATEMENTS Balance sheets Consolidated Accts DEFAULT DATA Failures 'privileges’ Late payment Statutes Property OFFICIAL PUBLICATION Bodacc Balo Companies House STATISTICS Creations Company ids Activity code Employees Branches OTHER SOURCES Chambers of Commerce Mortgage Register COFACE SERVICES DISTRIBUTION ENQUIRIES DATABASE (FRANCE) ANALYSTS Suppliers Clients ANALYSTS Banks COLLECTIONS Defaults Delays BUYER VISITS Confidential info

Basic steps in production of a Credit Report Order of Credit Report • Name of Company • Address • Tel • Credit Limit Company Verified Company not Verified Contact Company(Visit or call) Research on secondary data Entry of Report, Analysis Report completed Send to Client

Basic contents of a credit report • Identification Data; • Company Name • Address, and contact information • Registration Number • Background data • Field of Activity (NACE, WF, HS, etc.) • Date of Establishment • Legal Structure • Number of employees • Capital size • Name of Management • Name of owners / shareholders and their ownership percentage • Financial Links

Basic contents of a credit report • Operational data • Who are the company’s main clients • Who are the company’s main suppliers • Geographical presence of the subject • Distribution networks • Etc. • Financial data • Balance sheet • Income Statement • Cash Flow Statement • OR some of the most important financial elements

Basic contents of a credit report • Payment Performance (Credit History) • Formal • Informal • Assessment of the subject company • In terms of a score • In terms of a credit limit • Summary and opinion

Credit Scores • A credit score is a numerical measurement of risk through a statistical formula • There are two kinds of scores used in Coface • the @Rating Score • Is based on very sophisticated statistical models in countries where default figures are available on detailed basis • Is on a scale of 0 to 10 and shows the probability of default within a 12 months period, where 0 is a company in default and 10 is a company with almost zero risk of default • The @Rating Score is considered to be mainly an “information” score

Credit Scores • The Generic Score • Is based on a more simplified statistical model, and fewer data parameters • Used mainly in countries where it was not possible to build a statistical model due to the lack of data or high costs of data collection • Variables used and their weights – in contrary to the @Rating -is the same for all countries • However, Coface has been developing recently country-specific G-Scores, where parameters and weights were adapted to countries or groups of countries • It has been implemented in Africa, while it is in development stage in Latin America • Shows the probability of overdue accounts • The G-Score is considered to be an “insurance” score • SESAME is the statistical department in Coface in charge of development of scores

Buyers Visits • Buyers Visits is another commonly used information service • While credit reports are usually done via phone calls and e mail exchanges, visits are made to gather more detailed and confidential data • In Coface, visits are required for high exposures • In west Africa, all reports are conducted through visits, for difficulties in obtaining information via phone calls • In 2010, Coface has made over 3000 visits world wide

Confidentiality of Information • Coface respects confidentiality of sensitive data • Sensitive data is data on companies that are not disclosed to the public and is not even available for all employees within a given company • Sensitive data includes financial data, classified operational data, etc. • Coface hence guarantees that all confidential data will not be disclosed or sold to third parties without the written consent of the buyer • Respecting confidentiality has been a good approach to encourage buyers to disclose data and cooperate with our researchers

Information Culture in the Middle East • The “information culture” is a recent and developing concept in the Middle East • What is meant by information culture is • how important the business community believes information is, • how much are we willing to invest in it, • and how transparent are we willing to be • All of the above will determine the size, nature and effectiveness of the information infrastructure in any given country • A good information infrastructure facilitates the production of customized reports and researches

Information Culture in UAE • There are around 300,000 registered company in UAE in the Chambers of Commerce • In order to obtain its license, a company operating in UAE must disclose some information to the Chamber (at least name, contacts, activity) • Chambers are hence considered a good source for at least identification information on companies

Information Culture in UAE (Cont’ed) • Dubai and Abu Dhabi stock exchanges are the main source for background and financial data on companies listed with total of 129 listed companies • On the other hand, businesses in the UAE are very reluctant to disclose data to non-governmental agencies, which makes it difficult to obtain in-depth or detailed information on a company operating in UAE • There is a strong web presence for companies, as majority of them have websites

Information Culture in KSA • According to the official figures, there are around 900,000 companies registered in the kingdom’s Ministry of Trade & Industry and the 27 industrial and commercial chambers • Both the ministry as well as the chambers have identification data on these companies, however, only 30% of the companies have accurate data • There are 146 listed in the stock exchange • There is a relatively lower presence in the web in comparison to the UAE

Information culture in Egypt • According to official figures, there is some 1.8 million registered entity • However, only 300,000 companies are considered as operational medium and large size companies • In comparison to UAE and KSA, Egypt is considered the least developed in terms of information on companies

Information culture in Egypt • This is mainly due to lack of organization and lack of proper usage of ICT tools • The most comprehensive database in the country is in the hand of Coface through its Kompass database on Egyptian companies • There is however a good presence of Egyptian companies on the web

Q & A THANK YOU

Information & Rating