It was a good year especially for international credit rating agencies as 2019 proved to be another record-breaking year for the Asia G3 bond market. More issuers, including several first-time market participants, accessed the bond market, bringing the total issuance volume to US$349.47 billion, according to Refinitiv, exceeding the previous record volume of US$333.27 billion in 2017. The amount also represented an increase of 28.2% from US$272.69 billion in 2018.
As investors point out, while they do not solely rely on credit rating agencies’ reports for their investment decision-making process, they serve as good references in reviewing and assessing the credit strengths and weaknesses of issuers and borrowers across the different credit spectrum.
“The credit rating agencies’ reports and opinions are relevant and important, although we do not rely 100% on them as we do have our own internal rating system and analytical team,” says one investor. “We take into account their comments and arguments into our analyses to make sure we have a fair credit assessment of a company.”
“Like the other global asset managers, we have a dedicated pool of research analysts who do their own work on particular credit,” adds another investor. “Our rating decision is clearly and absolutely not influenced by the rating agencies, but their analyses offer a bit of guidance on how we look at credit.”
While the ESG (environmental, social and governance) theme continues to gain a lot of market momentum, investors say it is too early for them to make a call about which rating agencies are incorporating ESG in their rating actions.
But they cited Fitch Ratings as doing a very credible job in positioning ESG in credit ratings. As the ESG Rating Agency of the Year, Fitch has a dedicated global ESG research team to focus on the methodology and cross-sectoral research, including emerging trends, such as carbon regulation and themes such as climate change.
In January 2019, Fitch announced the launch of a new integrated scoring system that shows how ESG factors impact individual credit rating decisions. The new ESG Relevance Scores, which have been produced by Fitch’s analytical teams, transparently and consistently display both the relevance and materiality of ESG elements to the rating decision.
In August, Fitch launched what it described as a heat map on ESG risks covering 51 different industry sectors for corporate issuers to provide further insight on the relevance of ESG factors to credit ratings.
Moody’s Investors Service was awarded the Green Rating Agency of the Year after having rated several landmark and trailblazing green, sustainability and Social Development Goal (SDG) bond transactions.
Some of the major deals it solely rated were the CHF (Swiss Francs) 100 million (US$103.3 million) green bond and US$300 million green bond issued by Bank of the Philippine Islands in August and September, respectively; the US$300 million sustainability bond issued by Rizal Commercial Banking Corporation in September; the Greater Bay Area-theme multi-currency (CNH, Hong Kong dollar and US dollar) five-tranche green bond from Industrial and Commercial Bank of China (Hong Kong); and the US$680 million SDG Formosa bond from CIMB Bank.
Moody’s also rated the Republic of Korea’s US$1.5 billion green and sustainability bond – the first by the sovereign issuer globally – and the US$1 billion green bond by the Hong Kong SAR.
The award for Sovereign Rating Agency of the Year goes to Fitch Ratings, which in September 2019 was the first to downgrade Hong Kong’s credit rating from AA+ to AA with negative outlook.
Fitch attributes its rating change to months of persistent conflict and violence, which it says then were testing the perimeters and pliability of the One Country, Two Systems framework that governs Hong Kong’s relationship with China. It says the [ongoing] events have also inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law, and have called into question the stability and dynamism of its business environment.
Fitch’s rating downgrade of Hong Kong was validated more than four months later when Moody’s Investors Service announced on January 20 this year that it was lowering the territory’s credit rating from Aa2 to Aa3 with stable outlook. The downgrade principally reflects Moody’s view that Hong Kong’s institutions and governance strength are lower than previously estimated.
Moody’s adds the absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect a weaker inherent institutional capacity than Moody’s had previously assessed.
In other rating actions, Fitch placed Vietnam’s rating on a positive outlook in May and revised the outlook for Thailand from stable to positive in July. While Fitch does not have the highest coverage of Asia-Pacific sovereigns, it was involved in several significant sovereign and government bond transactions in 2019, including those for Hong Kong, Indonesia, the Philippines, South Korea and Sri Lanka.
Moody’s Investors Service wins the Financial Institution Rating Agency of the Year award, having received very positive feedback from investors. “Moody’s is the first rating agency that we look at for reports and rating actions when assessing credit of financial institutions,” says one investor. “Outside of the big Chinese banks, they also cover the smaller Chinese banks, providing analyses on their credit metrics.”
During the year, Moody’s solely rated the bond transactions of a number of banks such as the US$750 million offering by the Philippine National Bank in June, the CHF100 million green bond and US$300 million green bond issued by the Bank of the Philippine Islands, the US$300 million sustainability bond issued by Rizal Commercial Banking Corporation, the US$300 million inaugural offshore bond from Vietnam Prosperity Joint Stock Commercial Bank in July, the US$300 million bond from RHB Bank and US$850 million bond from Maybank of Malaysia, and the debut US$400 million bond issued by IndusInd Bank of India in April.
Moody’s also solely rated the 600-million-sterling (US$788 million) bond in July issued by Industrial and Commercial Bank of China, the first-ever public sterling issuance from a Chinese bank.
Moody’s likewise assigned first-time ratings to several financial and non-bank financial institutions, including NCC Bank of Bangladesh, Southeast Asia Joint Stock Commercial Bank of Vietnam, KB Kookmin Card and KDB Life Insurance from Korea, IndusInd Bank, Hero FinCorp Limited and Muthoot Finance from India and Adira Dinamika Multi-Finance from Indonesia.
In November, Moody’s assigned first-time A3/P-2 deposit ratings with a stable outlook to WeBank Company, a privately-owned digital-only bank without any physical branches in China.
The Corporate Rating Agency of the Year award is also being presented to Moody’s Investors Service, which was cited for its coverage of Chinese corporate credits. “They provide more insights of the companies and are transparent in their analyses, including in provision of statistics,” says one investor. “They are more thorough in their credit opinion.”
Moody’s rated several first-time corporate issuers across the region in 2019, including Adani Green Energy, Adani Transmission and ReNew Power from India; Barito Pacific and Buana Lintas Lautan from Indonesia; Tavan Bogd Trade from Mongolia; Bright Food International, Nanjing Pukou Economic Development Company, and Kunming Rail Transit from China; and CK Hutchison Group Telecom from Hong Kong.
Investors were critical about a number of credit events that hit the corporate sector last year, one of which involved the commodity trader Tewoo Group of China, which was described as the first offshore default by a state-owned enterprise in nearly 20 years. “If I have to interpret what happened to Tewoo, the initial rating given to the company was wrong and that should not have happened in this market,” argues one investor.
The Investment Grade Rating Agency of the Year award is given to Fitch Ratings, which demonstrated the strength of its franchise with the broad coverage of the sector in Asia-Pacific across financial institutions/insurance companies, corporates, and sovereigns, international public finance entities and global infrastructure and project finance.
It also made its mark with a number of solely-rated bond transactions for Shimao Property Holdings, Power Construction Corporation of China, Shougang Corporation, Jiuquan Iron and Steel (Group) Company, State Grid Corporation of China (debut private placement), Yunnan Provincial Energy Investment Group Company, and Chongqing Energy Investment Group Company.
Several first-time Chinese investment grade issuers in 2019 carried Fitch-only ratings, including Aluminium Corporation of China, Chongqing Energy Investment Group Company, Chengdu Jiaozi Financial Holding Group Company, Dalian Deta Holding Company, Hanjiang Guotou Group Company, Kunming Traffic Investment Company, Shangrao Investment Holding Group Company, Zhengzhou Urban Construction Investment Group Company, and Zhengzhou Real Estate Group Company.
The High Yield Rating Agency of the Year award goes to Moody’s Investors Service for their strong coverage of the sector, including the real estate credits. Moody’s puts out a regular review of the covenant quality of Asian high yield bonds for the benefit of all the stakeholders. For 2019, it says the average covenant quality score for Asian full-package high yield bonds weakened to an all-time weakest yearly score, though it is still stronger than the average registered for North American and EMEA bonds in 2019.
In 2019, Moody’s rated several first-time high yield issuers across the region, including Mong Duong Finance Holdings in Vietnam; Barito Pacific and Buana Lintas Lautan in Indonesia; Tavan Bogd Trade in Mongolia; and 21Vianet, Jinke Property Group Company, Zensun Group, GCL Intelligent Energy Company and Southern Energy Company in China.
Fitch Ratings is selected as the Public Finance Rating Agency of the Year, underpinned by the strength of its coverage of local government financing vehicles (LGFVs) in China. As one investor points out: “The LGFV sector is really Fitch’s strength as indicated by the universe of companies that it rates.” Fitch says that it provides 117 public ratings for China’s LGFV issuers as of the end of October 2019, and that between January and October 2019, it has rated 89% of the public issuance deals by China’s public finance issuers.
Among the public finance deals in 2019 that carried Fitch-only ratings include those for Mianyang Investment Holding, Qingdao City Construction Investment Group, Guangxi Liuzhou Dongcheng Investment Development Group, Changde Urban Construction and Investment Group Company, Shandong Guohui Investment Company, China Jianyin Investment and Chengdu Airport Xingcheng Investment Group Company.
For Structured Finance Rating Agency of the Year, the award goes to S&P Global Ratings, which demonstrated its capability to assign AAA ratings to a number of renminbi-denominated asset-backed notes. These include the four-billion-yuan (US$580 million) retail auto mortgage loan securitization for Genius Auto Finance Company, 8.95 billion yuan retail auto mortgage loan securitization for Mercedes-Benz Auto Finance Limited, and 5.50 billion yuan retail auto mortgage loan securitization for BMW Automotive Finance (China) Company.
In addition, S&P Global was the only rating agency to assign a rating in the 500-million-euro (US$554.45 million) social covered bond by Korea Housing Finance Corporation in June 2019 – its first ever AAA-rated statutory covered bond transaction. It was also the only rating agency to rate the US$200 million consumer loan securitization by PrimeCredit in Hong Kong. The deal was the first public term securitization in Hong Kong since early 2000 and the first-ever public consumer loan securitization in the territory. It was also the first AAA-rated consumer loan securitization in Asia, outside of Japan.
In China, the Rating Agency of the Year award goes to CCXI for the second year in a row. The company was also ranked top in the latest annual credit rating agency report of the National Association of Financial Market Institutional Investors (NAFMII). In 2019, CCXI maintained its leading position in corporates, financial institutions, investment grade issuers and green bond.
Meanwhile, China Lianhe Credit Ratings is chosen as the Rating Agency of the Year for sovereign, public finance and structured finance in China, underscoring its strength in rating deals involving, among others, sovereign Panda bonds, asset-backed securities and LGFV issuers.
Lianhe Ratings Global is awarded the Rating Agency of the Year – Global for its growing participation in offshore Chinese US dollar bond transactions. During the period of January 1 to December 15 2019, Lianhe Ratings Global published solicited credit ratings of 14 issuers in the offshore US dollar bond market, which marked a breakthrough achievement for Chinese credit rating agencies.
China Pengyuan International is recognized as Rising Star Rating Agency of the Year – Global, for its coverage and focus on China’s local governments and LGFVs. One deal that stood out for the company was the US$300 million bond deal for Huai’an Water Conservancy Holding Group Company, which carried a Pengyuan rating only when it accessed the market in April 2019.
In Bangladesh, the Credit Rating Agency of Bangladesh (CRAB) wins the Rating Agency of the Year award. It distinguished itself by providing comprehensive credit rating, grading and corporate advisory and information services, mostly to the private sector businesses. It also assists the regulators in promoting transparency in the financial markets and provides the intermediaries with a tool to improve efficiency in the fundraising process.
CRAB has standard rating methodologies for various instruments and industries based on standards and procedures to meet the rating requirements for each industry or each type of financial instrument.
At present, it has more than 3,500 live corporate clients. Out of these, about 50% are large and medium corporates from all the significant industry segments of the country’s economy. In 2018-2019, it rated 2,772 companies across different industries, most of which are in the trading sector totaling 1,191. It upgraded the rating of 104 companies, while downgrading 16 companies.
The Malaysian Rating Corporation (MARC) wins the Rating Agency of the Year accolade in Malaysia. Its rating coverage extends to corporate finance, including financial institutions and insurance, structured finance, public finance, and infrastructure and project finance. Its rating universe of infrastructure and project finance encompasses a variety of domestic projects and infrastructure assets in the toll roads, energy, water and port sectors
Since its inception in 1996 to December 31 2019, MARC has completed a total of 831 ratings, including 451 corporate debt ratings with a total rated value of 385.16 billion ringgit (US$94.68 billion), 91 project finance ratings with a total rated value of 117.35 billion ringgit, and 187 structured finance ratings with a total rated value of 47.64 billion ringgit.
Meanwhile, MARC decided to provide impact bond assessment (IBA) amid the growing interest in green bonds and the general consensus around the potential of impact bonds to play a larger role in funding sustainable development.
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