Ratings agencies from China, Russia and US to take on Big Three
The objective is to have an international credit rating system and criteria over the next five years, say the main movers of the Hong Kong project
Three credit rating agencies, from China, Russia and the United States, aim to launch a multilateral ratings organisation to challenge the dominance of the Big Three: Standard & Poor's, Moody's and Fitch Ratings.
They plan to set up the new company in Hong Kong within six months, along with rating agencies from other countries.
Dagong Global Credit Rating, a Beijing-based agency founded in 1994, is teaming up with Egan-Jones Ratings of Pennsylvania and RusRating of Moscow to create a "multilateral, independent, international" agency called the Universal Credit Rating Group.
Its goal is to establish an international credit rating supervision system and unified rating criteria over the next five years, the three agencies' heads said in Beijing yesterday. Dagong president Guan Jianzhong said more than 20 agencies have expressed interest in joining the group.
RusRating president Richard Hainsworth said "it's not sufficient" for the industry "to be dominated by just a tiny number of companies or the understanding of analysts sitting in one town, in one city", given the complex nature of the world and competing interests among countries.
"Overly optimistic credit ratings have led to an economic crisis," said Sean Egan, co-founder of Egan-Jones. His agency and Dagong were among the first agencies to downgrade the sovereign debt of the US; eventually, S&P followed suit.
Vocal critics of the Big Three, Dagong and Egan-Jones have not escaped scrutiny themselves.
In August last year, the same week it downgraded the US debt for the second time, Dagong was ridiculed at home for giving the debt-ridden Railways Ministry its highest rating of AAA while rating China's sovereign debt AA+.
Egan-Jones, meanwhile, has run into flak from the US Securities and Exchange Commission. The firm, one of nine accredited rating agencies in the US, downgraded the US debt for the second time on April 5 this year. On April 24, the SEC filed a complaint accusing the firm of overstating its expertise in its application for accreditation in 2008.
Observers, such as Bloomberg columnist William Cohan, have suggested the SEC is trying to punish Egan-Jones for not playing ball.
Senior officials including central bank chief Zhou Xiaochuan have criticised the oligopoly of the Big Three and pledged to support home-grown agencies.
Dagong applied in 2009 to enter the US market but failed to get approval from the US regulators. It has applied to Hong Kong securities regulators for a licence to operate in the city.
Asked why the new group will be based in Hong Kong, Guan said it wants "to be located closer to its future market and make it more convenient for the group to operate".