File photo shows the headquarters of the People's Bank of China in Beijing, capital of China. (Xinhua/Cai Yang)
BEIJING, Aug. 9 (Xinhua) -- Chinese central bank issued jointly with four other regulators a circular to promote healthy development of bond credit rating industry on August 6, reported Xinhua-run Xinhua Finance recently.
The circular requires credit rating agencies to strengthen credit rating system construction, optimize corporate governance and internal control mechanisms, and reinforce information disclosure.
Improving credit rating industry ecology and tightening supervision and regulation over credit rating agencies are also highlighted in the circular, according to the People's Bank of China (PBOC), the central bank.
As PBOC says, the circular is helpful to enhance the quality and differentiation of credit ratings and further exploit the role of credit rating in risk discovery and pricing to create fair market environment and better service bond market development.
In the future, PBOC vowed to strengthen, together with other Chinese regulators, supervision and regulation over credit rating industry.
By far, large credit rating agencies have all adjusted their rating methods and the past inflated ratings in credit rating industry in China have been changed to an extent.
By August 6, 84.38 percent of corporate bond issuers in China have been given higher than AA ratings while in the same period of 2020, corporate bond issuers with AA above ratings accounted for 85.84 percent.
In the first half of 2021, ratings of 2,686 batches of bonds and 212 issuers were downgraded while from January to June, 2020, 1,902 batches of bonds and 100 corporate bond issuers saw their ratings downgraded.
However, some industry insiders warned that the current rating grades may fail to precisely reflect the risks in related corporate bonds and their issuers.
After the circular's previous version for public opinion inviting came out, part of rating agencies simply resorted to rating downgrading to amplify certain hidden problems, which mistakenly hurt certain issuers and made them lose their ability to finance on the capital market.
Under such circumstances, the existing bonds of these downgraded issuers and institutional investors who held them both faced higher risks.
Without significant changes in China's economic fundamental, the overall rating downgrading of corporate bonds in the first half of this year is questioned by some industry experts.
To prevent drastic rating adjustment under special situations, the circular requires credit rating agencies to immediately launch back tracking and reviews once they adjust three and more sub-ratings for an issuer.
Apart from these, the circular also contains content on picking suitable timing to adjust the threshold for investment grade bonds and guiding and enlarging the application scope of investor paid ratings.
In bond valuation and pricing, bond indices products development, and pledged bond repurchases, investor paid ratings can be taken references from and issuers can also select investor paid ratings as references for their internal risk control, according to the circular.
Analysts thought that these contents provide new opportunities for investor paid ratings but due to the limited proportion of application in China, trial running is needed for further application and use of the mode. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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