Chinese rating agency opens international unit

IFR Asia 758 - August 4, 2012
3 min read
Asia

The first Chinese rating agency to receive an international licence opened an office in Hong Kong last week, promising to bring a “more objective” approach to credit ratings.

China Chengxin (Asia Pacific) Credit Ratings, a unit of China Chengxin Credit Rating Group, is targeting the growing offshore market for Chinese debt as it looks to make its mark in the international arena.

“For issuers, CCAP hopes to provide more objective insights about Chinese issuers than its international peers,” said Philip Li, managing director of China Chengxin (Asia Pacific), told IFR. “We plan to start with mainland issuers with plans to tap Dim Sum bonds, as well as other currencies, then into more complex products such as structured debt and other financial instruments at a later stage.”

Chengxin’s arrival in Hong Kong marks China’s latest attempt to increase its influence in international ratings, a sign of its frustration with the ratings assigned to the sovereign and its major SOEs by the international agencies. Chengxin was set up in 1992 with the approval of the People’s Bank of China.

Chinese rating agencies have set out to challenge the dominance of the three rating giants, Standard & Poor’s, Moody’s and Fitch. Domestic peer Dagong rated the US AA/AA (local/foreign) in July 2010, while putting China at AA+/AAA (local/foreign), and downgraded the US to A in August 2011. However, such ratings have attracted little international attention, because the agencies operate under domestic Chinese regulations.

Dagong had its application to enter the US market turned down by the US SEC in September 2010.

Chengxin’s Hong Kong licence – awarded under new laws introduced in June to regulate the rating industry – makes its ratings applicable in Europe without further certification, providing an immediate boost to its international ambitions.

The move is also viewed as part of China’s grand plan for the internationalisation of the renminbi.

As more Chinese companies borrow overseas, the country’s sovereign rating of Aa3/AA–/A+ (Moody’s/S&P/Fitch) caps all corporate ratings, and affects their funding costs.

Many overseas investors have stayed away from offshore renminbi, or Dim Sum, bonds from Chinese issuers with low international ratings – even though their domestic credit scores may be far higher.

For example, major genco Datang’s Rmb1bn (US$158m) unrated Dim Sum paper drew an underwhelming Rmb1.3bn book. Datang’s domestic rating is AA+, but, in the offshore market, its Hong Kong-listed unit Datang International has a BB rating from Fitch.

CCAP hopes to remedy that by offering a different opinion from the big three international rating agencies. As more Chinese investors have joined the offshore market, CCAP’s Li thinks that Chinese investors and, later, other foreign investors will value their opinions.

“International acceptance of our ratings is definitely a major task for us to work on,” he said.

The new agency will face competition in assigning ratings to Dim Sum bonds and Chinese issuers with existing international agencies.

China Chengxin Credit Rating Group issues ratings in China’s domestic market through China Chengxin International Credit Rating, a joint venture with Moody’s (49%).

Meanwhile, Hong Kong-based CCAP is 95% owned by CCCRG and will operate in the international market, effectively competing with Moody’s.

CCAP opened its Hong Kong office on July 31.