Dagong refutes claims of AAA 'generosity'

Updated: 2011-08-20 09:33

By Wei Tian (China Daily)

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BEIJING - Dagong Global Credit Rating Co Ltd on Friday denied accusations of "generosity" in the ratings it has awarded to domestic companies and some local government bonds, which many market experts felt were high risk.

Some media outlets pointed out that Dagong has awarded the highest rating (AAA) 156 times in the past year. Most of those AAA ratings were awarded to bonds issued by State-owned enterprises or local government financing vehicles which many experts consider to be a potential default risk.

However, the agency claims that the number is misleading because "one company may have issued multiple debts within a year", and 156 was the total number of ratings given to all bond issuances by AAA-rated companies.

"Although some issuing bodies do not have AAA ratings themselves, their bonds may get the highest rating because of good guarantees," said Jin Yongshou, Dagong's managing vice-president.

There are only 39 issuers with a AAA rating on Dagong's list, accounting for 11.5 percent of all those rated. The proportion is lower than the average level in China of 13 percent (220 out of 1680), media reports said, citing the financial data service provider Wind Information Co Ltd.

Dagong has also provided ratings for 86 out of 263 bonds issued by local governments nationwide, of which about one-sixth were given an AAA rating.

"Local government bonds were issued by the "best of the best" financing vehicles, and account for less than 10 percent of the 6.7 trillion yuan ($1.04 trillion) direct debt of local governments," said Gang Meng, director of Dagong's rating committee.

Although there may be regional risks in the overall debt of local governments, the credits of the bonds are still secure, Gang said.

Dagong is the only major ratings agency in China that has not received an injection of foreign capital.

The agency garnered much publicity for its downgrading of the United States' sovereign credit rating on Aug 3, five days before Standard & Poor's in the United States made a similar move.

However, eyebrows were raised earlier this month when Dagong gave an AAA rating to a short-term bond issued by the Ministry of Railways, despite the fact that the ministry was still embroiled in the aftermath of a high-speed rail accident in which 40 people died.

Although Dagong defended the rating - even higher than China's AA+ sovereign debt rating - by saying the ministry has sufficient cash flow and a strong ability to repay, the market thinks otherwise.

"Considering the bonds issued are mostly backed by local governments, Dagong has a reason for giving them the highest rating, because Chinese local governments never go bankrupt," said Fan Mingtai, a senior researcher with the Institute of Quantitative & Technical Economics at the Chinese Academy of Social Sciences.