Caixin
Sep 03, 2012 06:37 PM

Unprofitable China COSCO Holdings Still Gets Top Rating

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(Beijing) – Beijing-based China Lianhe Credit Rating Co. Ltd. has granted a rating of AAA to unprofitable China COSCO Holdings Co., a move that reveals a split between domestic and international credit rating firms.

COSCO, China's largest shipping company, lost 4.87 billion yuan in the first half of the year, Wei Jiafu, the firm's chairman said on August 30.

Based on its position among global shipping companies, client resources and possible government bailout, COSCO can pay back the bonds it has issued with its operating cash and assets, China Lianhe said in an August 28 report.

However, using cash flow to assess a company's ability to pay back its debt is inadequate, an analyst from a large international credit rating agency who declined to be named said. Foreign ratings firms use other indicators such as funds from operations, cash flow from operating activities and leverage ratio based on these criteria.

Fitch Ratings, one of three largest credit rating agencies in the world, says in its updated methodology on company ratings that an industry's performance in a given period will affect the performances of companies. Even if a company has a sound financial record, Fitch will not award AAA ratings to these companies.

The shipping sector has been declining since the outbreak of global financial crisis in 2008 and will be weak for the next three years, Wei said.

COSCO lost 10.45 billion yuan last year.

A report by the National Association of Financial Market Institutional Investors says that although China's economy has slowed, domestic rating agencies have not downgraded Chinese companies, indicating they are not taking external conditions into consideration.

Some industry insiders said that they normally don't refer to the bond ratings from domestic rating agencies, but prefer to research a company on their own and make their own decisions.

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