Chinese credit rating agency Dagong suspended after cash-for-ratings probe
Watchdog orders firm to cease domestic services for a year after it was found to have compromised its independence by charging excessive fees
A Chinese credit rating agency has been ordered by Beijing to suspend services in the Chinese market for a year after it was found to have effectively sold good ratings to bond issuers.
The uncovering of irregularities at the Beijing-based Dagong Global Credit Rating Co exposed the lack of independent and trustworthy credit ratings in the Chinese bond market – a problem that amplifies the risks for fixed-income product investors.
China’s market is currently closed to the big three international rating houses – Moody’s, S&P Global Ratings and Fitch Ratings.
While Beijing has promised to open up the market and will soon allow foreign credit rating agencies to provide services independently, for now foreign rating agencies are only allowed to take part in joint ventures.
Among the 1,744 Chinese bond issuers rated at the end of June, 97 per cent of them were rated with AA and above, according to National Association of Financial Market Institutional Investors, the watchdog of China’s internet bank market.
Of those, 464 bond issuers were given the highest rating possible.