Chinese regulators have allowed S&P Global Ratings’ Beijing-based wholly owned unit to conduct credit rating business on the mainland, according to a statement from the People’s Bank of China.
The credit assessor is now allowed to register for bond rating service in China’s interbank market.
The PBOC did not mention Moody’s Investors Service and Fitch Ratings in its announcement on Monday.
The introduction of international rating firms will meet foreign investors’ demand for various yuan-denominated assets and improve credit rating quality in the domestic market, the central bank said in the statement.
For two decades China had restricted foreign rating agencies to partner with Chinese firms.
The PBOC said that it supports further opening-up of the rating industry and will tighten regulations for credit assessment in China.
“We are honoured to establish the first credit rating agency wholly owned by an international investor in China to serve its domestic bond markets,” said Douglas L Peterson, S&P Global president and CEO. “This announcement reinforces our belief that we are uniquely placed to meet the substantial demand from Chinese issuers and investors for transparent, globally understood and reliable credit ratings, data and research.”
John Berisford, president of S&P Global Ratings, said that this approval was the latest step in an ongoing dialogue with China’s regulators about the future they envisage for their financial markets.
“We believe that we are best equipped to provide an independent opinion on China’s debt markets as they develop, and we are ready to play our part, Berisford said.
China opened the door for overseas ratings firms in 2017 as a way to speed up reform and foster competition in the domestic bond market.
S&P said last year it was studying a credit-ratings scale tailored for China as part of its application to secure a licence to rate bonds in the country.
“International credit raters will take time to get local clients and they will also face the issue of lower fees for rating services in China, hence we expect limited impact on local peers for now,” said Lv Pin, a credit analyst at Citic Securities.
In China, about 97 per cent of 1,741 non-financial corporate bonds had ratings of AA or above, according to a November 6 statement from the National Association of Financial Market Institutional Investors.
Under the terms of the NAFMII approval, S&P Global (China) Ratings will be authorised to rate issuers and issuances from financial institutions and corporates, structured finance bonds and renminbi denominated bonds from foreign issuers (Panda bonds).
Last August, Dagong Global Credit Rating was banned from assessing bonds after the firm offered consulting services to borrowers with high fees.
An investigation by Chinese regulators said the Beijing-based rating agency had broken the rules by providing consulting services to firms it was rating and charging high fees that compromised its independence.
The investigation also found that it had provided false statements and untrue information during the investigation, adding that its actions had a “very negative” impact on the market.
Moody’s and Fitch have both launched wholly-owned subsidiaries in China that are dedicated to the nation’s domestic bond market.
The two did not immediately reply to emails seeking comment on whether they have also secured an approval for conducting rating business in China.
The Post reported in October, citing an S&P Global report that China’s local governments may have accumulated 40 trillion yuan (US$6 trillion) worth of “hidden debts” that are not reflected in official figures, which is “a debt iceberg with titanic credit risks” to the world’s second biggest economy.
According to official figures released by the Chinese Ministry of Finance, local governments had combined outstanding debts of 17.7 trillion yuan at the end of August, although Beijing has admitted the existence of “hidden debts” and attempted to curb unauthorised borrowing by local authorities.
Additional reporting by the Post