Moody's links up with China ratings company

International ratings agency Moody's Investors Service is taking a 49 per cent stake in China Chengxin International Credit Rating to tap the mainland's rising demand for ratings services.

Moody's decision came after years of futile lobbying for direct market access and less than two years after international rival Fitch Ratings pulled out of Chengxin, then the mainland's only Sino-foreign agency licensed to rate yuan bond issues.

Pending regulatory approval, Moody's will buy the shares from the Beijing-based agency's shareholders, China Chengxin Credit Management and an affiliated entity.

The global player had the option to increase its ownership over time as permitted by the mainland authorities, a statement from the company said yesterday.

'This joint venture will allow us to address the growing demand for credit analysis, ratings, research and training in China,' Chester Murray, an executive vice-president of Moody's international business, said in the statement.

Under the agreement, Moody's will provide management expertise, technical support on rating methodologies and analyst training.

Moody's, which can rate Chinese companies for offshore capital market transactions but not domestic offerings, would also market joint ratings with 14-year-old Chengxin to global issuers in the mainland markets, the statement said.

Chengxin, the first nationwide domestic credit rating agency approved by the People's Bank of China was 30 per cent owned by Fitch and 15 per cent held by International Finance Corp, the private sector investment arm of the World Bank, until they divested the interest in July 2004.

Fitch said at the time, the sale was consistent with its global strategy of seeking majority control over overseas subsidiaries.

Market sources, however, attributed its exit and other international ratings agencies' reluctance to enter such partnerships to concerns over not being able to control the quality of ratings issued by the domestic joint venture.

An April 2004 report by Chengxin caused a stir by granting AAA ratings to the Big Four state banks in China, when the lenders were in the process of being bailed out by the state and described by foreign analysts as technically insolvent and inefficient.

Moody's and Fitch had hoped China would permit international agencies to rate mainland transactions without a mainland partner as part of greater capital markets opening following the country's World Trade Organisation membership, a market observer said yesterday.

But a refusal by the authorities to grant such direct market access might have provided Moody's with the final push for the leap of faith, he added.