Caixin
Mar 27, 2021 07:51 PM
FINANCE

China Further Revamps Credit Ratings Rules in Wake of Massive Bond Defaults

What’s new: Chinese companies will in principle no longer need to disclose credit ratings reports for certain bonds issued on the interbank market, according to new rules (link in Chinese) issued Friday by the market regulator.

The rules, which will take effect on Monday, are part of the interbank regulator’s efforts to reduce bond issuers’ reliance on ratings providers, as a recent wave of defaults by highly rated companies has exposed how domestic ratings agencies provided excessively generous scores and downplayed credit risks in an effort to secure clients.

Details: According to the new rules, an issuer still needs to disclose a credit ratings report for a bond if the repayment order of the bond’s principal and interest is ranked after the issuer’s ordinary unsecured debts, which may cause the bond’s rating to be lower than the issuer’s rating as a whole.

Disclosing credit ratings reports on issuers themselves are still required, the rules said.

The background: The Friday rules are part of the interbank watchdog’s phased plan to scrap credit ratings requirements for both the bond registration and issuance processes. The ratings requirement for the registration process was removed last month.

China’s interbank market holds around 90% of the country’s total onshore bonds by value, while the rest are traded on the country’s two major stock exchanges, which are overseen by the securities regulator.

Last month, the securities watchdog also scrapped the requirement for companies to obtain credit ratings before they issue bonds on the exchanges.

Luo Meihan contributed to this report.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full Caixin article in Chinese, click here.

Related: China Regulator Shakes Up Credit Ratings Rules in Wake of Confidence Blows to Investors

Contact reporter Lin Jinbing (jinbinglin@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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