Singapore’s GIC has made a strategic investment in China Lianhe Credit Rating Co., Ltd (Lianhe Ratings) in a deal that saw credit rating agency Fitch Ratings offload its 49 per cent stake in the latter in favour of the city-state’s sovereign wealth fund, according to a media release.
Financial terms of the investment are undisclosed.
Fitch had acquired its stake in China Lianhe in April 2007. The other shareholder in the Chinese firm is United Credit Ratings, which holds a 51 per cent interest, according to the agency’s website.
Despite its exit from Lianhe Ratings, Fitch will continue to operate its international credit ratings business throughout the region, including through its offices in Beijing and Shanghai.
An account by the Wall Street Journal indicates that Fitch plans to be the first independent bond ratings firm to operate in China following the divestment of its stake in Lianhe Ratings. It is reportedly planning to apply for a licence from Chinese regulators for these independent operations, which will cater to China’s $11.7 trillion bond market.
This comes as the credit ratings agency evaluates opportunities created by China’s changing regulatory landscape. In 2017, Beijing proposed to fully open its credit rating market to foreign participation through the removal of ownership restrictions, a move that saw strong approval among global rating agencies.
Established in 2000, the Beijing-based Lianhe Ratings aims to promote the sustainable development of China’s capital market and positions itself as the “leading credit rating agency in China.”
GIC believes rating agencies will play an increasingly important role in the pricing of bonds and the identification of risks.
The agency will compete with Moody’s Investors Service, which operates in China as a 49 per cent shareholder in China Chengxin International Credit Rating Co, while S&P Global Ratings has a partnership with Shanghai Brilliance Credit Rating & Investors Service Co.
However, local firms are unconcerned about the entry of foreign players in the Chinese market, with Moody’s-backed China Chengxin International Credit Rating Co. reportedly possessing the largest market share for rating securities in China’s $9 trillion bond market.
Yan Yan, chairman of China Chengxin, had said in an interview: “We aren’t worried about the impact from the potential entrance of international rating companies. In the early days, the market may pay more attention to a more advanced methodology of international rating agencies, but after eight or 10 years, domestic firms will prove to have an edge.”