Emerging market corporate bonds — a scoring system

Abstract

In this article we discuss a scoring system (EMS model) for emerging markets corporate bonds. The scoring system provides an empirically based tool for the investor to use in making relative value determinations. The EMS model is an enhanced version of the statistically proven Z-score model (Altman, 1968) designed for US companies. Unlike the original Z-score model, our approach can be applied to non-manufacturing companies and manufacturers, and is relevant for privately held and publicly owned firms. The adjusted EMS model incorporates the particular credit characteristics of emerging markets companies, and is best suited for assessing relative value among emerging markets credits. The EMS model combines fundamental credit analysis and rigorous benchmarks together with analyst-enhanced assessments to reach a modified rating, which can then be compared with agency ratings (if any) and market levels. We have included a summary of Mexican companies for which we have applied the EMS model.