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China allows foreign agencies to rate onshore bonds
July 05, 2017
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HONG KONG: China has allowed international rating agencies to rate onshore bonds, provided they have an onshore branch registered with the People’s Bank of China.

The ruling was released last night, on the first day of operation of the new Bond Connect scheme, which gives offshore investors direct access to China’s onshore bond market from Hong Kong.

The PBoC, the regulator for rating agencies, outlined in a notice the requirements for assigning ratings to onshore issuers and notes listed in the interbank bond market.

Domestic and foreign agencies shall have sound corporate governance and must not have been involved in any major illegal acts in the past three years.

The move allows foreign rating agencies to take a bigger role in the onshore market as China further opens up its domestic bond market.

Until now, foreign agencies have only rated securities backed by auto-loans in the interbank bond market. Many of these securitisations are originated by foreign-owned auto financing companies, which have sought international ratings, in addition to onshore ratings, to attract foreign investors.

For other domestic issuers, there has been no incentive to pay for international ratings for domestic issues. International agencies, meanwhile, have left that business to local partners.

Bond Connect, the latest step of the opening of the China’s capital markets, offers offshore investors the easiest access to the mainland’s US$9trn bond market.

Late last year, the Ministry of Commerce and the National Development and Reform Commission - the government’s top planning agency - jointly published draft foreign investment guidelines aimed at removing restrictions on credit investigation and ratings services.

The opening of the Chinese market to foreign rating agencies was also included in the 100-day plan agreed between China and the United States in May. According to a joint release published on the US Commerce department website, China was to allow wholly foreign-owned financial services firms to provide credit rating services and to begin the licensing process for credit investigation by July 16.

Agencies

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