China Banks Get First S&P Ratings -- WSJ
July 12 2019 - 3:02AM
Dow Jones News
By Shen Hong
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 12, 2019).
SHANGHAI -- S&P Global Inc. became the first foreign
credit-rating company to offer an independent assessment of risk in
China's vast domestic debt market, giving a top grade to a unit of
the country's largest bank.
The move is a milestone for the $13.3 trillion onshore bond
market, where foreign investment is increasing and the world's
three major rating companies -- S&P, Moody's Investors Service
and Fitch Ratings -- have long coveted a bigger presence.
Beijing is also eager to foster a more rational market in which
investors are more discriminating about credit risk, and recognize
they won't be shielded from defaults.
S&P gave a triple-A rating to ICBC Financial Leasing Co., a
unit of Industrial & Commercial Bank of China Ltd., with a
stable outlook, it said Thursday. The grade is the highest on the
dedicated scale S&P has developed for China, which doesn't
correspond to the same grade on its global system.
Beijing first pledged to allow wholly owned foreign companies to
rate onshore bonds in discussions with the Trump administration in
May 2017, and S&P won the first such approval, from the central
bank, this January.
Global rating houses had previously been required to pair with
local partners in conducting credit ratings in China. S&P,
however, didn't have a joint venture in China, and so didn't rate
yuan bonds issued inside the country.
Fitch set up a wholly owned subsidiary, Fitch (China) Bohua
Credit Ratings Ltd., last year, and has applied for a license to
rate bonds in China's interbank market. A Fitch Bohua
representative said the company was communicating closely with
regulators.
Moody's has also set up its wholly owned unit in China and is
applying for a license as well. In a statement, Moody's said it is
exploring ways to better serve its customers but didn't address its
pending application.
Investors hope that allowing the global raters to operate could
help improve the quality of the local ratings industry, which has
long been criticized for being overly lenient with debtors. Earlier
this year, a government-owned enterprise took control of Dagong
Global Credit Rating Co., one of China's biggest debt-risk
assessors. Regulators had earlier suspended Dagong's rating
business for a year, criticizing it for "chaotic internal
management" and for offering consulting services to debt
issuers.
However, some bondholders worry that applying a custom rating
system to China could make the three global companies bow to
demands from debt issuers and regulators and be less critical in
their assessment.
Among the 4,706 bond issuers in China's domestic market, 18%
enjoy a triple-A rating, while 81% are at or above double-A,
according to data provider Wind.
ICBC Financial Leasing, which specializes in aviation, shipping
and equipment leases, also has a triple-A credit rating from China
Lianhe Credit Rating Co., a local company in which Fitch had owned
a 49% stake until last year.
S&P said it views the leasing company as a core subsidiary
of ICBC, the world's largest bank by assets.
Write to Shen Hong at hong.shen@wsj.com
(END) Dow Jones Newswires
July 12, 2019 02:47 ET (06:47 GMT)
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