SEC rating scheme to gauge companies

The Securities and Exchange Commission (SEC) will soon institute an internal rating system to gauge the overall health of companies and serve as an early warning mechanism for those found with delinquencies.

The so-called SEC Mileage rating system will be tied up with the creation of a specialized audit unit at the SEC, one of the functions of which is "to devise a Standard for Examination and Rating (SER) of Specialized Industries."

"This will provide an integrated, electronically-driven monitoring system for the SEC," Chairman Lilia Bautista said, adding that this scheme is similar to the recent "Fit and Proper Rule" devised by the Bangko Sentral ng Pilipinas for the banking sector.

The SEC Mileage is actually an acronym for the different qualities or factor the corporate watchdog will look for in companies: sensitivity to environmental development and risks (20 percent); earning assets quality (10 percent); capital adequacy (10 percent); management and stakeholders (10 percent); industry performance (five percent); liquidity (10 percent); earnings (10 percent); asset quality including intangible assets (10 percent); and governance and ethical standards (15 percent).

Bautista said the rating system will be initially applied to the listed companies whose operations and financial health must be quickly evaluated not only for its own benefit, but also for the sake of the public stockholders who usually are the last to know of their companies’ difficulties. – Conrado Diaz Jr.