China seeks to drop rating requirement for some bond issuers

Beijing

CHINA'S securities regulator has proposed removing a requirement for bond issuers on the country's stock exchange markets to seek credit ratings, in the latest move to make it easier for firms to sell debt.

The China Securities Regulatory Commission didn't keep the clause on ratings in a new draft of guidelines on issuance and trading of exchange-listed corporate notes that it published late on Friday seeking public feedback.

China has taken steps in recent months to streamline the process or lower thresholds for companies to raise debt, as part of a broader effort to ease financial stress and arrest a dramatic economic slowdown in the aftermath of the virus pandemic. The latest move is drawing attention after a recent selloff in government debt led to a slump in new bond sales.

"The move could make it easier for some issuers to sell bonds and it is in the spirit of implementing the registration-based system for debt issuance with a more streamlined process," said Qi Sheng, chief fixed income analyst at Founder Securities Co.

The removal of the previously mandatory requirement may also in the long run help prevent domestic credit rating firms from issuing often-inflated grades under pressure from borrowers, analysts said.

"This move can address excessive competition in the local credit rating industry," said Li Han, analyst from Citic Securities Co, adding that it will prompt rating firms to focus more on borrowers' business operations and financial data.

The CSRC said public consultation on the amended draft guidelines will end on Sept 6. BLOOMBERG