Chinese authorities are to prosecute the former chief executive of a leading credit rating agency for allegedly accepting “massive” bribes, as Beijing vows to improve oversight of the industry at the series of unprecedented bond defaults.
The Central Disciplinary Inspection Commission announced on Monday that Jin Yongshou, former managing director of Golden Credit Rating, would be prosecuted for allegedly accepting bribes from issuers covered by the agency and helping numerous companies to improve their credit ratings.
The watchdog made the announcement a day after the People’s Bank of China pledged to improve its oversight of the country’s rating agencies. Last month, a series of highly rated issuer defaults sent shock waves through China’s $ 15 billion government debt market.
The lawsuit of Mr. Jin, along with a former local managing director of Golden Credit, comes a year after authorities announced the couple were under investigation for allegedly accepting money to improve the credit rating of businesses, according to CCDI. Companies that do not have a sufficiently high credit rating cannot issue publicly traded debt.
PBoC vice chairman Pan Gongsheng on Sunday criticized the industry for its artificially high ratings, poor differentiation of issuer credit risk and other issues that have “held back high-quality development” of the bond market. from the country.
Regulators recently berated national rating agencies, including Golden Credit rivals China Chengxin and Dagong, for their slow responses to the growing credit risk of the issuers they cover.
China Yongcheng, the coal miner who was the first to default last month, was rated triple A when he missed his first payment. China Chengxin, which covers Yongcheng, is under investigation over its rating for the company.
Only five companies over 5,000 people were revised down last month to less than double A by national rating agencies – the minimum level at which regulators allow companies to issue debt in the Chinese interbank market.
Along with intense competition from competing rating houses, most of which are state-run or have significant state ties, Chinese agencies are reluctant to risk losing business by rating clients below double A’s.
It can bring down entire agencies responsible for rating much of China’s onshore debt. In March 2019, an official investigation into Dagong revealed conflicts of interest and a lack of quality control which ultimately led to the group being taken over by a state investor the following month.
But Mr. Jin’s lawsuit is not explicitly linked to the recent defaults, and analysts have expressed skepticism about a wave of similar incidents.
“We don’t expect this to be standard practice, but rather ad hoc,” said Bruce Pang, head of macroeconomic strategy research at China Renaissance Securities.
“They want to release certain signals, ”he added, stressing the need for them to keep“ a closer eye on all these professional service agencies ”.
Additional reporting by Wang Xueqiao in Shanghai