Chinese ratings agencies gaining global influence

Chinese ratings agencies expanded their global influence amid a booming dollar bond market in 2017.

Bloomberg data show that the number of dollar bonds issued by Chinese companies more than doubled to 2,157 last year, raising the total to $313.9 billion. This was more than six times the financing value in 2016.

“Based on the acceleration of offshore financing by Chinese companies, domestic ratings agencies will speed up the internationalization process and raise their voices in the global market,” said Zhang Tingting, deputy head of the overseas business department of China Chengxin International Credit Rating Co.

“Domestic rating agencies have rich experience in local ratings and a deep understanding of China’s economic environment and political system, although their history is relatively short compared with their foreign counterparts. This gives them an inherent information advantage to understand the credit risk of different types of bond issuers more accurately, which in turn helps overseas investors understand the operational logic of Chinese companies and assess the risk,” Zhang said.

Xue Bin, general manager of Dagong Global Credit Rating Simon Choi, CEO of Dagong Global Credit Rating Co Ltd’s marketing branch in Shanghai, said many Chinese bond issuers consider hiring domestic ratings agencies and some issued bonds with dual ratings by both international and domestic agencies, whereas they only thought of Standard and Poor’s, Moody’s and Fitch Ratings in the past.

Credit rating agencies including China Chengxin, Shanghai Brilliance Credit Rating & Investors Service Co Ltd, and Golden Credit Rating International Co Ltd have stepped up efforts for global expansion.

Last year, China Chengxin (Asia Pacific) Credit Ratings Company Ltd, a subsidiary of China Chengxin International Credit Rating, helped New Metro Global Limited, a wholly owned subsidiary of Chinese real estate conglomerate Future Land Holdings Group Co Ltd, issue $200 million in five-year offshore bonds at a coupon rate of 5 percent annually. It was the first time that a Chinese credit ratings agency rated a Chinese real estate company for an offshore bond issuance.

“With the acceleration of renminbi’s internationalization, overseas mergers and acquisitions by domestic companies will become increasingly frequent, thus driving up the companies’ demand for foreign currencies,” Simon Choi, chief executive officer of Dagong Global Credit Rating, said at a forum on offshore bond investment and financing last year.

He predicted that offshore bond issuance will become a trend for Chinese companies at the current stage, due to rising costs for onshore bond issuance and policies launched by China in 2017 to favor overseas financing.

Apart from credit ratings agencies, a number of investors with Chinese background also joined the country’s dollar bond market during the last two years, said Ivan Chung, associate managing director of Moody’s Investors Service Hong Kong Ltd.

Many asset management companies and commercial banks have set up their own dollar bond investment units in Hong Kong and Singapore. These investors are more inclined to buy dollar bonds issued by Chinese companies because they know the firms well, he added.

Overseas mergers and acquisitions by domestic companies will become increasingly frequent.”