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See also credit rating agencies and global regulation of credit rating agencies.


Dagong still plans to enter U.S. market after rebuff

Dagong Global Credit Rating Co. said it will press ahead with plans to enter the U.S. after the Securities and Exchange Commission rejected its application to be an approved debt rating service.

Dagong is urging China’s securities regulator to talk to the U.S. government and enable the company to comply with U.S. laws that require direct access to its books, Chairman Guan Jianzhong said in an interview in Beijing yesterday. Of the 10 firms U.S. regulators have approved, two are Japanese and one is Canadian, according to a list by the SEC.

“There is an objective need for Dagong to go international,” Guan said. “As one of the main world creditors, the basic credit conditions overseas and the state of assets are very important to the sustainable development of China. In this post-crisis era we can change the layout of the international credit ratings industry.”

The SEC turned down the firm’s December request in a Sept. 22 order, in part because it couldn’t reliably ensure the Beijing company would comply with U.S. reporting rules, which include the ability to carry out on-site inspections. Dagong said requests for records required under U.S. law would have to go through the China Securities Regulatory Commission, which would collect the documents.

‘State Secrets’

The Chinese regulator could withhold anything considered “state secrets” or information of “vital interest to relevant securities companies,” the SEC said in its order. This “potential information vacuum” undermines reporting rules, the commission said.

Dagong is considering taking legal action against the order, Guan said, though the SEC has made it into a government dialogue by focusing on cross-border regulation. “We hope that the Chinese government can take hold of this problem,” he said. “From the beginning they have supported it.”

Guan said the company could avoid the issue of state secrets, adding that was “not the main problem.” Once Dagong enters the U.S., its unit would be regulated like local credit rating firms, he said.

Guan said Dagong will open an office in Hong Kong by next year to rate yuan-denominated bonds issued in the territory.

Of China’s three largest credit rating agencies, Dagong, founded in 1994, is the only one without a foreign partner. Guan, whose company charges for ratings services, said Dagong would offer another viewpoint on credit risk.

“The whole world invests in America and relies on the three large credit ratings firms,” he said. “If we go, we can see risk from a different angle and give investors another choice.”

SEC denies Dagong registration

China's largest rating firm reaffirmed Saturday its bid for registration in the United States is justifiable and legal and said the U.S. regulator's rejection of its application is discriminatory.

The Securities and Exchange Commission (SEC) of the U.S. on Thursday declined the application by Dagong Global Credit Rating Co. Ltd. to become an officially recognized bond rater in the United States.

The SEC said it refused the registration because it could not ensure the Beijing-based company would comply with U.S. reporting rules.

"On the record before us, it appears that Dagong would not control what information would be produced to commission staff," SEC said. "We are unable to conclude that Dagong can comply with the record-keeping, production, and inspection requirements of the Exchange Act."

Dagong contended reporting rules are related to a nation's sovereignty, and should be coordinated between government regulators and not business entities.

Dagong also said reporting rules have never been used as a standard for the SEC to approve registration of rating agencies in the United States.

"It is a barrier specifically set for Dagong, which is obviously discriminatory against China and the Chinese rating agency. We are resolutely opposed that," Dagong said.

Dagong said its application is simply "market activity," that should not be involved in politics.

Rejection of the application runs counter to U.S. securities laws, it said, adding that it reserves the right to safeguard its interests through legal action.

As United States's largest foreign debtor and an owner of a significant amount of U.S. dollar-denominated assets, it is important a Chinese rating agency have a say in the rating of U.S. financial assets.

In a report released in July, Dagong gave emerging economies like Brazil and China higher credit ratings than the United States, the United Kingdom and Japan, based on their economic performance during the global financial crisis and debt levels.

Dagong's sovereign credit ratings were markedly different from those given by the three Western rating agencies - Moody's, Standard & Poors and Fitch.

Dagong said SEC's denial of its application indicates its intention to protect the monopolistic status of the three major rating agencies.

"We hope the SEC can comply with the agreements reached in the U.S.-China Strategic and Economic Dialogue and keep its rating market open to the rest of the world, based on internationally-recognized rules with transparency and equality," Dagong said.

Founded in 1994, privately-owned Dagong provides credit rating and risk analysis research for all bond issuers in China. It has more than 500 employees.

It also designs most domestic debt instruments and leads the Chinese credit rating market for corporate bonds and structured debt products.

Source: Xinhua

Chairman of McGraw-Hill defends US raters

Is the Chinese credit rating agency Dagong Global Credit Rating with its chairman Guan Jianzhong, right in blaming the global financial crisis on Western counter parts, such as S&P Ratings, Moody’s and Fitch?

Or is it like Harold “Terry” McGraw argues, S&P, Moody’s and Fitch have been unfairly targeted by politicians, commentators and competitors all over the world?

In an interview with the Financial Times, Harold “Terry” McGraw III chairman and chief executive of McGraw-Hill Companies, which owns S&P Ratings, said:“If you’re in a populist mood, you’ve got to find the villain.”

The paper adds some US politicians have described the credit rating industry as a “bone-chilling definition of corruption”, but McGraw said his company’s only contribution to the financial crisis was to make honest, technical mistakes.

“A couple of assumptions we made didn’t work out and we just totally missed on the US housing recession,” he admitted.

McGraw responded accusations that western rating agencies are politicised and highly ideological by calling the widespread reaction in Japan in the mid-1980s when S&P downgraded Japanese banks for making risky loans.

Not surprisingly, maybe, and in stark contrast to the assessments of other agencies, Dagong has ranked China as more politically and economically stable than the US, Britain, Japan, France and most other large economies.

Jianzhong also suggested governments should play a bigger role in credit rating decisions, a proposal that McGraw emphatically rejected: “You want a credit rating agency to be fully accountable, transparent and you want them independent and out there at arm’s length. When a government says they want to have more control, that’s bad news.”


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