Caixin
Dec 25, 2017 07:47 PM
FINANCE

Moody's China Unit Ranked as Best Rater of Interbank Bonds

Inflated ratings remain a perennial problem, the National Association of Financial Market Institutional Investors said. Of the 1,500 or so publicly traded bonds covered by China’s four largest ratings agencies, nearly 70% are ranked AA or above, according to data compiled by Bloomberg. Photo: Visual China
Inflated ratings remain a perennial problem, the National Association of Financial Market Institutional Investors said. Of the 1,500 or so publicly traded bonds covered by China’s four largest ratings agencies, nearly 70% are ranked AA or above, according to data compiled by Bloomberg. Photo: Visual China

China Chengxin International Credit Rating Co. Ltd., 30%-owned by Moody’s Investors Service, has been ranked as the best Chinese interbank-bond ratings agency.

But when the National Association of Financial Market Institutional Investors (NAFMII) released the ranking Friday, the self-regulatory body said all five domestic agencies that assess the credit risks of interbank bonds have not lived up to its standards.

The ranking come at a time when China’s central bank has decided to allow foreign credit ratings agencies to assess and rank the credit risks of onshore interbank bonds, a policy first announced in July. Interbank bonds account for 90% of the trading of onshore debt, and are the only bonds that can be traded under the Bond Connect program.

In the ranking, Dagong Global Credit Rating Co. Ltd. came in second. The third to fifth players are Shanghai Brilliance Credit Rating & Investors Service Co. Ltd., China Lianhe Credit Rating Co. Ltd. and Golden Credit Rating International Co. Ltd,. respectively.

Inflated ratings remain a perennial problem, NAFMII said. Of the 1,500 or so publicly traded bonds covered by China’s four largest ratings agencies, nearly 70% are ranked AA or above, according to data compiled by Bloomberg.

The association added that these agencies failed to adequately address major credit risks and had calculation errors. They also did not properly engage with companies throughout the rating process. Their practices for filing clients’ information and research materials were unsatisfactory.

Offshore investors have repeatedly voiced concerns about the low credibility of credit-risk assessments carried out by Chinese ratings agencies. For instance, domestic ratings usually take potential government or bank bailouts into account, which is not in line with international practice.

In a working paper published by the Bank of International Settlements in June, ratings by domestic Chinese agencies are on average six to seven notches above global agencies for the same company. For domestic agencies, a company’s asset size is weighed more positively, while for global agencies, profitability and state ownership are weighed more positively, and leverage is weighed more negatively, the paper said.

The story has been updated to correct the size of China Chengxin International Credit Rating Co. Ltd.'s stake held by Moody's

Contact reporter Aries Poon (ariespoon@caixin.com)

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