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17 October 2019
INVESTMENT

Moody’s may shelve plans to acquire controlling stake China’s Chengxin

The effort has been held up mainly because Moody’s failed to get regulatory clearance, amid prolonged trade tensions between the US and China.

Bloomberg/Scott Eells


Moody’s may have to shelve a plan to take control of China Chengxin International Credit Rating Company, the nation’s largest rating company, amid regulatory inaction, reported Bloomberg.

The rating agency, seeking to take advantage of China’s policy of opening its financial sector to global firms, reached a framework agreement to increase its holding in Chengxin to more than 50 per cent, from 30 per cent. The US-based firm also approached the People’s Bank of China for feedback on its plan.

China has over the past two years embarked on an unprecedented policy of levelling the playing field for international finance. But despite rule changes, including allowing majority stakes in domestic joint ventures, foreign entities say they still face hidden barriers as they try to gain increased access to the $43 trillion industry.

Authorities last year began allowing offshore firms to take majority stakes in securities ventures. In the insurance, payments and credit-rating sectors, a few companies received approval for control of onshore units. Foreign participation remains a small fraction of overall business in the industry.

Overseas firms seeking approvals for increased stakes in local ventures under the new rules have had to wait for months. New York-based JPMorgan Chase & Co. and Japan’s Nomura Holdings based in Tokyo, waited more than 10 months after submitting applications for majority control of local securities ventures before getting the green light.

Additionally, Switzerland’s UBS Group had a nearly seven-month wait.

S&P Global in January 2019 became the first foreign rating company allowed to set up its own local unit to rate domestic Chinese bonds while Moody’s application for a wholly-owned unit.

Under the original Moody’s and Chengxin agreement from 2006, Moody’s has the option to raise its stake to 51 per cent if Chinese regulators allow it. China opened the door for overseas rating firms in 2017 as a way to speed up reform and foster competition in the domestic bond market.

China’s securities regulator last week set a timetable for foreign financial firms to have full control of local ventures and the cabinet this week published revised rules easing requirements for overseas banks and insurers operating in the country.

In July 2019, regulators said that they will allow overseas credit-rating companies to rate bonds listed in China.


RELATED STORIES: CHINESE BONDS S&P GLOBAL CHINA CHENGXIN INTERNATIONAL CREDIT RATING COMPANY MOODY’S JPMORGAN CHASE & CO. NOMURA HOLDINGS


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