Galaxy Entertainment yesterday vowed to stop using rating agencies after Moody's withdrew rankings issued to the Macau-based gaming operator, the latest sign agencies are struggling to grab business from the growing yuan debt market.
Moody's said the withdrawal of its rating of Galaxy was related to 'its own business reasons', a statement that attracted a denial from Galaxy that the rating agency was the first to cut off the relationship.
In a statement yesterday, Galaxy said it had not 'renewed' its arrangements with Moody's and Standard & Poor's after the early redemption of its 2010 and 2012 US dollar-denominated bonds.
The gaming giant had no intention of raising capital right now, Galaxy Entertainment's vice-president for investor relations, Peter Caveny, said. 'We don't have any outstanding US dollar bonds,' he said. 'There's no shareholder value to pay for that rating.' The company also had sufficient capital to keep its current projects going, according to Caveny.
Galaxy in December raised 1.38 billion yuan (HK$1.65 billion) in an unrated yuan-denominated bond issue and in June also closed a club loan of HK$9 billion.
An increasing number of Hong Kong-listed companies with mainland businesses have successfully sold their bonds to international investors in the offshore yuan bond market without a rating as a result of the strong appetite for exposure to the currency.
Hopewell Highway Infrastructure, a subsidiary of Hopewell Holdings, said yesterday it would issue 600 million yuan bonds due in 2014 to institutional investors.
Bond issuers such as Galaxy with a strong focus on the mainland have found the yuan bond market more favourable than the US dollar market because the interest rates it pays to bondholders are likely to be lower.
The size of the yuan debt market was now US$3.83 billion, according to data from Dealogic, and the majority of the deals are not rated.
To tap investor interest in yuan, borrowers such as highly geared mainland developers have also used so-called synthetic bonds, which pay interest to investors in US dollars but the payment is linked to the yuan exchange rate, effectively giving bondholders exposure to the currency.
Offshore investment-grade yuan bonds have persistently low yields, often just slightly higher than deposit rates, driving yield-hungry investors to riskier names.
However, Kristine Li, Singapore-based chief financial credit strategist for Asia excluding Australia at the Royal Bank of Scotland, warned investors about overlooking credit risks in such offerings.
'It's not normal to go by without a rating,' Li said. 'A rating helps investors to differentiate borrowers and to price.'
Mainland-based borrowers often don't have track records or tend to be highly geared and are likely to get a lower rating from the agencies and therefore would have to pay investors high level of interests.
Established companies such as Galaxy and Hopewell would choose to circumvent the rating agencies because they were able to raise yuan debt in the offshore market accessible to international investors without paying for a rating.
Standard & Poor's recently launched a new rating system to target yuan bond borrowers.