China’s central bank is facing a live test of its credit rating crackdown as Zhuhai Huafa Group Co., a state-owned conglomerate, retains its top AAA grade from a local rating firm despite its bonds plunging to distressed levels. The firm missed two trust product payments, prompting Fitch Ratings to rate it BBB and place it on negative watch. Huafa’s strong local rating reflects a broader issue: about 28% of China’s 6,000+ bond issuers were rated AAA domestically by Q2, compared to only three US firms—Apple, Microsoft, and Johnson & Johnson—holding top grades from Fitch, Moody’s, or S&P.
Regulators urged rating firms in June to reassess AAA issuers, especially those with spreads widening over 200 basis points. Huafa’s domestic yuan notes have fallen below 70% of face value, with yields exceeding 10%. China Lianhe Credit Rating, which issued the AAA rating, and the People’s Bank of China did not respond to requests for comment.
Huafa, owned by Guangdong province and known for building the 330-meter Zhuhai Tower, has $62 billion in borrowings and slowing profits. While it has met bond repayments and received state support pledges, investors remain anxious. Other Chinese firms like China Vanke and Evergrande have also retained high ratings during distress.
Analysts say rating actions lag behind credit developments, and maintaining a rating doesn’t mean risk hasn’t increased.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing