One of three Chinese ratings agencies, Dagong Global Credit Rating, has been suspended from doing business in bond markets following an investigation that revealed "chaotic" management and false credit ratings.
China's National Association of Financial Market Institutional Investors (NAFMII) said on Friday that it would suspend the debt-financing instrument business for non-financial firms of Dagong for one year.
NAFMII — an industry association under the central bank that supervises the debt market — said that an investigation into Dagong's business practices had found evidence that the ratings agency provided direct consultation services to firms that it also issued credit ratings for. Moreover, it had given false statements and information to NAFMII during an investigation.
The practice of selling consulting services to the very same companies it issues ratings on "seriously deviated from the principle of independence," NAFMII explained in a statement.
Also on Friday, Dagong was banned for one year from rating debt instruments issued on China's stock exchanges by another financial market regulator, the China Securities Regulatory Commission.
A spokesman for the regulator said that onsite inspections of Dagong had revealed misuse of the company's official seal, "chaotic management," high fees for consulting services, unqualified senior management, and problems with financial models used in bond ratings.
Dagong and China's two other major ratings agencies — China Chengxin and China Lianhe — have repeatedly been suspected of granting higher ratings than their foreign counterparts on the same companies.
Dagong made headlines earlier this year when it cut the local and foreign currency sovereign ratings of the United States to BBB+ from A- and also placed them on a negative outlook.
By contrast, global market leaders Fitch and Moody's both maintained their top AAA ratings for the US, while S&P put it on a slightly lower grade of AA+.
uhe/aos (Reuters, AFP)