Understand the general relationship between S&P Global (China) rating scales and S&P Global ratings

0

Despite the broad relationship between the two scales, they are different and there is no correspondence between the two. Both scales serve the same purpose: to provide better credit differentiations and greater granularity on rating results. Our computer-based analysis of indicative credit quality, detailed below, shows the results of S&P Global (China) Ratings are more widely distributed, due to the removal of any constraint related to sovereign credit rating that may be applicable in the S&P Global Ratings methodology.

S&P Global (China) Rating methodologies are largely based on S&P Global Ratings frameworks, but have been modified and adapted for local application in China. To help investors better understand the general relationship between the two scales, we performed a literature review of 143 Chinese companies, applying S&P Global (China) Methodology of ratings for public information.

The chart below shows S&P Global (China) Ratings opinion on the indicative credit quality distribution of 143 companies. This sample covers almost all business sectors, the entities being selected from a pool of more than 200 companies on which S&P Global Ratings has exceptional ratings. We have chosen to exclude certain entities from this documentary analysis, in particular Hong Kong-subsidiaries of Chinese companies or offshore financing platforms which are less likely to be issuers in the domestic market. The graph also includes the breakdown of a larger pool of 1,700 companies to show how this fits with our view of differentiated credit quality.

From the graph, we can observe a broad relationship between the two rating scales, with the indicative distribution of credit quality by S&P Global China Ratings of 143 companies spanning the entire spectrum of [AAAspc] at [Bspc-] and lower. For companies rated in category A by S&P Global Ratings, their indicative credit quality on S&P Global (China) The rating scale can be somewhere between [AAAspc] and [AAspc-], on four different notches. Companies rated in the BBB category by S&P Global Ratings may have an indicative credit quality ranging from [AAspc+] at [BBBspc+] on the S&P Global (China) Rating scale.

This wider distribution can be attributed to differences in the basic analytical approaches used in our respective business methodologies, to sovereign credit quality constraints that may be applicable to S&P Global credit ratings, as well as to differences in credit ratings. analytical approaches associated with any benefit of increasing support from a group or government. potentially applicable to a given issuer.

In general, the ratings of companies with higher credit quality may vary more widely on the two scales, while any rating difference for entities with lower credit quality is generally smaller. It should be emphasized that this is based on our observation and is not absolute, and that there is no one-to-one correspondence between the results of S&P Global (China) S&P Global Ratings and Ratings.

An overview of our approach to RMB bonds issued by foreign institutions in China (Panda Bonds) offers another perspective on the relationship between the two scales. The S&P Global (China) Ratings The Panda Bond rating methodology is a separate framework. In this context, for foreign issuers who carry out the majority of their activities abroad, we generally refer to the credit opinion of S&P Global Ratings on the entity and use it as a starting point to arrive at S&P Global (China) Determination of the rating of ratings.

Source: S&P Global (China) Notes.
Copyright © 2021 by S&P Ratings (China) Co., Ltd. All rights reserved.

As shown in the chart above, when S&P Global Ratings considers a foreign issuer to have relatively lower credit quality (typically lower than the BBB category), S&P Global (China) Ratings can assign a similar view of credit quality with adjustments typically up to 2 notches. When S&P Global Ratings considers a foreign issuer to have better credit quality, S&P Global (China) Ratings may assign a credit quality view generally within a range of 2 to 5 notches above the credit quality opinion of S&P Global Ratings.

According to our Panda bond rating methodology, the indicative credit quality of foreign issuers follows similar trends to that of domestic issuers according to S&P Global (China) The other ratings methodologies of Ratings, with some correlation with the credit opinions of S&P Global Ratings. However, in both cases, there is no one-to-one correspondence relationship with S&P Global Ratings.

This report does not constitute a rating action.

(Note: This document is prepared in English and Chinese. The English translation is for reference only, and the Chinese version will prevail if there is any inconsistency between the English version and the Chinese version.)

S&P Global (China) Ratings is the first wholly foreign-owned credit rating agency to provide independent credit ratings in the Chinese domestic market. Its ratings and knowledge are based on the principles and objectivity of S&P Global Ratings, the world’s leading provider of credit ratings. We provide our opinions and research on relative credit risk; market participants obtain independent information to help support the growth of transparent and liquid debt markets within China and all over the world. For more information, visit www.spgchinaratings.cn.

Copyright © 2021 by S&P Ratings (China) Co., Ltd. All rights reserved.

S&P Ratings (China) Co., Ltd. (“S&P Ratings”) owns the copyright and / or other intellectual property rights relating to the aforementioned content (including ratings, analysis and credit-related data, ratings, model, software or any other application or output thereof) or any part thereof (Content). No Content may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in any database or retrieval system, without the prior written permission of S&P Ratings. The Content must not be used for illegal or unauthorized purposes. S&P Ratings and any third party vendors, and their directors, officers, shareholders, employees or agents (collectively “S&P Parties”) do not guarantee the accuracy, completeness, timeliness or availability of the Content. The S&P parties are not responsible for any errors or omissions (negligence or otherwise), whatever the cause, in the results obtained from the use of the content, or the security or maintenance of the data entered by the S&P parties. ‘user. The Content is provided “as is”. THE S&P PARTIES DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR PURPOSE, NO BUGS, ERRORS OR DEFECTS SOFTWARE, THAT THE CONTENT WILL NOT WORK OR THE CONTENT WILL WORK WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. Under no circumstances will the S&P parties be liable to any party for damages, costs, expenses, legal fees or direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential losses (including, but not limited to limit, loss of income or loss of profits and opportunity costs or losses caused by negligence) in connection with any use of the Content, even if he is aware of the possibility of such damages.

Credit-related and other analyzes, including ratings, and statements in the Content are statements of opinion as of the date on which they are expressed and not statements of fact. S&P Ratings opinions, analyzes, forecasts and rating recognition decisions (described below) are not and should not be construed as recommendations to buy, hold or sell any securities or to make decisions about it. investment, and do not address the suitability of a security. S&P Ratings assumes no obligation to update the Content after publication in any form or format. The Content must not be relied on and does not substitute for the skills, judgment and experience of the user, his management, his employees, his advisers and / or his clients when making decisions. investment and other business decisions. S&P Ratings does not act as a trustee or investment advisor, unless it is registered as such. Although S&P Ratings has obtained information from sources it believes to be reliable, S&P Ratings does not perform an audit and does not assume any due diligence or independent verification obligations on the information it receives. Ratings-related publications may be published for a variety of reasons which are not necessarily dependent on the action of the rating committees, including, but not limited to, the publication of a periodic update of a credit rating. and associated analyzes.

S&P RATINGS IS NOT PART OF THE NRSRO. A RATING ISSUED BY S&P RATINGS IS ASSIGNED TO A RATING SCALE SPECIFICALLY FOR USE IN CHINA, AND IS THE OPINION OF S&P RATINGS ON THE OVERALL STRENGTH OF A DEBTOR OR THE ABILITY TO MEET SPECIFIC FINANCIAL OBLIGATIONS, COMPARED TO THAT OF OTHER ISSUERS AND ISSUES IN CHINA ONLY AND PROVIDES A CLASSIFICATION OF CREDIT RISK IN CHINA. A RATING OF S&P RATINGS IS NOT A GLOBAL RATING, AND IS NOT AND SHOULD NOT BE CONSIDERED, INTERESTED OR REPRESENTED AS SUCH. THE S&P PARTIES ARE NOT RESPONSIBLE FOR LOSSES CAUSED BY THE USE OF S&P RATINGS RATINGS IN A MANNER CONTRARY TO THIS PARAGRAPH.

To the extent that regulatory authorities authorize a rating agency to recognize in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P Ratings reserves the right to grant, withdraw or suspend such recognition at any time. and at its sole discretion. S&P Ratings disclaims any obligation whatsoever arising from the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage allegedly suffered as a result thereof.

S&P Ratings keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, some business units of S&P Ratings may have information that is not available to other business units of S&P Ratings. S&P Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received as part of each analytical process.

S&P Ratings may receive compensation for its ratings and certain analyzes, normally from issuers or underwriters of securities or debtors. S&P Ratings reserves the right to disseminate its opinions and analyzes. S&P Ratings public reviews and ratings are available on its website www.spgchinaratings.cn and may be disseminated by other means, including through publications of S&P Ratings and third party redistributors.

SOURCE S&P Global Ratings

Share.

Comments are closed.