Sudden distress at top-rated firm tests China’s rating crackdown
Several Chinese companies have kept their AAA ratings even in the midst of defaults or debt restructuring
In the midst of Zhuhai Huafa, a state-owned conglomerate, facing default and debt restructuring, its AAA rating from a major local rating firm has remained intact. Despite its bonds plummeting to distressed levels, Huafa has retained its top AAA grade. Fitch Ratings, however, has downgraded Huafa to BBB, the lower end of investment grade, and both companies have placed Huafa on a negative watch, indicating a possible downgrade.
Only a handful of US companies have achieved AAA ratings, with Apple, Microsoft, and Johnson & Johnson being the three. Chinese regulators previously urged domestic rating firms to scrutinize AAA-rated issuers, but downgrading a large state-backed borrower is a high-risk decision that could trigger a broader sell-off in Chinese credit markets.
Experts caution that maintaining a rating does not necessarily mean the risk has not increased; the critical factor is whether state support can help the company repay its debt in time.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
