China deepens probes into the roles of rating agency, banks and brokers after AAA-rated Yongcheng Coal’s bond went bust
- Industrial Bank, China Everbright Bank, Zhongyuan Bank, China Chengxin International Credit Rating and Xigema Certified Public Accountants are being probed for alleged irregularities, the National Association of Financial Market Institutional Investors said
- Haitong Securities was earlier this week also put under investigation
China’s market regulator expanded its investigation into bond sales for a state-backed coal miner that unexpectedly defaulted on payments last week, dragging in a number of banks, rating and accounting firms.
Industrial Bank, China Everbright Bank, Zhongyuan Bank, China Chengxin International Credit Rating and Xigema Certified Public Accountants are being probed for alleged irregularities, the National Association of Financial Market Institutional Investors said in a statement. Haitong Securities was earlier this week also put under investigation.
The probe centers around deals for Yongcheng Coal & Electricity Holding Group, whose missed payment last week rocked the Chinese credit market. That default was followed by others from state-linked firms, long considered to be immune from such credit events because of their implicit government backing. The turmoil has caused a sell-off in bonds and some deals to be scrapped.
Amid the deepening stress, officials from China’s State Council have asked government departments to conduct a risk assessment, people familiar with the matter have said. The aim is to ensure stability in the financial markets and to prevent any spillover that could cause systemic risks, according to the people.
All the parties under investigation declined to immediately comment. Industrial Bank dropped 1.7 per cent while Everbright Bank fell 2.5 per cent as of 10:42am in Shanghai.
Yongcheng Coal is being probed for potential violations, including disclosing false information, after failing to make a payment on a 1 billion yuan (US$152 million) short-term note. The firm, which had been rated AAA by a local rating company and since downgraded to junk, cited “tight liquidity” for the default. Others missing payments include Tsinghua Unigroup and Brilliance Auto Group Holdings, a Chinese carmaker linked to BMW.
NAFMII is an interbank market watchdog supervised by China’s central bank.
Probes by the watchdog into irregularities aren’t unusual. For instance, the NAFMII in late April started an investigation into two investment banks involved in a deal with an unusually low fee. The penalties have varied from warnings to a ban on underwriting or debt financing activities.
