China regulator suspends Moody's Chinese JV over Yongcheng default

Shanghai

REGULATORS in China said on Tuesday they had suspended for three months the credit rating business of Moody's Chinese joint venture over its role in the default of a state-owned coal miner that stunned the domestic bond market last month.

Interbank bond market regulator National Association of Financial Market Institutional Investors (NAFMII) said China Chengxin International Credit Rating Co (CCXI) had violated rules as it handed out the three-month suspension.

CCXI is China's biggest credit rating agency and is 30 per cent owned by Moody's Investors Service, its website shows.

CCXI was investigated after its client, Yongcheng Coal & Electricity Holding Group Co, defaulted on a one billion yuan (S$200 million) bond on Nov 10, just weeks after it sold fresh debt, sending shockwaves across China's bond market. The bond had an 'AAA' rating at the time of the default.

CCXI had failed to properly conduct on-site due diligence on Yongcheng or adequately disclose risks, NAFMII said, urging the agency to take corrective steps.

During the suspension, CCXI is not allowed to conduct new rating business for debt financing instruments.

Moody's is not involved in CCXI's credit rating processes or daily operations. The US agency is awaiting Chinese regulatory approval for an independent credit rating licence in China.

Chinese regulators have vowed zero tolerance of financial market wrongdoing as they look to repair investor confidence after recent high-profile defaults by state firms such as Huachen Auto Group Holdings Co and Tsinghua Unigroup.

This month NAFMII warned of a risk of inflated credit ratings in China, where the vast majority of corporate bonds are rated AA or higher, implying little default risk and giving little guidance on pricing.

NAFMII also launched investigations into Yongcheng's underwriting banks and its accounting firm.

It also threatened to sanction Haitong Securities , saying the brokerage was suspected of easing the illegal issuance of bonds by Yongcheng Coal, and of manipulating the market.

NAFMII, a self-regulatory industry body under the purview of the People's Bank of China (PBOC), suspended some business of Dagong Global Credit Rating Co Ltd in 2018 after the agency violated regulations. REUTERS