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The rating agencies that best navigated Covid-19
Making bold calls and offering the best analysis in a year of turmoil
2 Feb 2021 | The Asset

Credit rating agencies went into an overdrive in 2020 with a plethora of rating actions in response to Covid-19. The pandemic negatively impacted corporate balance sheets across several industries, resulting in a large number of rating downgrades. It did not spare even the sovereigns as economic contraction raised the spectre of not being able to meet their external debt obligations.

But it’s not all downhill. Many other corporates defied the health crisis for being in the “right sectors” such as technology and healthcare/pharmaceuticals, and reaped rewards through higher stock prices and rating upgrades.

Indeed, Covid-19 provided the backdrop as The Asset board of editors evaluated the submissions to The Asset Triple A Rating Agency of the Year Awards 2020. The Asset Benchmark Research Survey targeting fixed income investors and The Asset Treasury Review involving CFOs, treasurers and other treasury professionals also provided inputs in selecting the winners. And, of course, client engagement continued to be a significant parameter in The Triple A Awards’ decision-making process.

The pandemic further highlights the significance of environmental, social and governance (ESG) initiatives among issuers and investors. Pushing ahead with its ESG approach on a number of fronts, Fitch Ratings is voted as the ESG Rating Agency of the Year. Its newly-formed global ESG research team comes out with in-depth thematic research on emerging ESG issues, including physical and transitional climate risks, deforestation and agricultural supply chain risks.

Fitch launched in October 2020 its ESG Relevance Scores Data Feed. It also launched a pilot report that evaluates the vulnerability of sectors’ and entities’ creditworthiness to ESG-driven risks up to the year 2050 through ESG Vulnerability Scores.

The agency gets high marks for being pro-active in its engagement with investors under the prevailing market environment with its series of webinars, roundtables and other events across the Asia-Pacific, earning a special citation as Covid-19 Response Rating Agency of the Year. It also produced market commentaries and other rating reports, sharing insights with the markets during the pandemic. It provided frequent updates to the market about rating actions taken due to Covid-19.

Green, sovereign ratings

Moody’s Investors Service continues to demonstrate leadership in sustainable finance and is chosen the Green Rating Agency of the Year. It rated several of the market-defining transactions in 2020 and it was the only credit rating agency that rated the green bonds issued by China Construction Bank (Hong Kong), China Merchants Bank (Hong Kong) and National University of Singapore, as well as the blue bond issued by Industrial Bank.

Several issuers embedded sustainable finance into their business model and Moody’s managed to capture a significant number of the deal flow. These included the green bonds for Mass Transit Railway of Hong Kong, Beijing Enterprises Holdings of China and Korea Electric Power Corporation (Kepco) of South Korea. It also rated several sustainability and social bonds from Korean issuers such as those from Kookmin Bank, Korea Land & Housing Corporation and Shinhan Card.

The series of credit rating downgrades due to Covid-19 did not spare the sovereigns, many reporting unprecedented economic contraction in 2020. Fitch made a number of tough calls as it wins the Sovereign Rating Agency of the Year. In December, it downgraded Malaysia from A- to BBB+ citing the weakening of several of the country’s key credit metrics.

The impact of Covid-19 also fueled Fitch’s downgrade of Hong Kong in April to AA- from AA – its second rating action on the territory in about seven months. The rating agency first downgraded Hong Kong in September 2019 from AA+ to AA, citing the then political turmoil that raised doubts about its governance. The latest rating downgrade was attributed to the impact of the pandemic, which has led to a contraction in economic activity and rising unemployment, prompting policymakers to announce the most expansionary budget in the territory’s history. 

Fitch downgraded Sri Lanka’s sovereign credit rating twice in 2020 – first from B to B- in April and then by two notches to CCC in November. The CCC rating means Fitch, according to its ratings framework, considers default to be a real possibility for Sri Lanka with the increasing risks to the country’s ability to meets its external debt repayments.

Also downgraded by two notches from B- to CCC was Laos in September, which according to Fitch, reflected the deepening external liquidity pressures and the sovereign’s large debt maturities. Another sovereign that suffered a rating downgrade twice from Fitch in 2020 was Maldives – first in March from B+ to B and later in November by three notches to CCC.

Public finance

Fitch retains the recognition as the Public Finance Rating Agency of the Year on the back of its strong credentials in covering the local government financing vehicles (LGFVs) in China. It provides an interactive tool to help investors analyze the credit profiles of the Chinese public sector and it has set the benchmark in the market by rating short-term notes issued by Chinese LGFVs.

In 2020, it solely rated the offshore bonds of several first-time public finance issuers in China, such as Shangrao Investment Holding Group Company, Rugao Economic and Trade Development Company, Zhongguancun Development Group, Hangzhou Finance and Investment Group Company, and Nanjing Jiangbei New Area Industrial Investment Group.

In terms of new ratings, apart from the slew of Chinese public finance issuers that dominate this sector, Fitch also assigned first-time ratings to Pakistan Water and Power Development Authority (B-), Housing and Development Board of Singapore (AAA), and to two New Zealand issuers Ashburton District Council (AA+) and Environment Canterbury (AA+).

Financial institutions

Moody’s is selected as the Financial Institution Rating Agency of the Year with its participation in rating several significant bond issuances in this space in 2020. It rated, among others, on a sole basis Bangkok Bank’s inaugural Basel III additional tier 1 (AT1) securities, Rizal Commercial Bank Corporation’s (RCBC) ATI securities, Peak Insurance’s inaugural bond, and the two bond deals by ZhongAn Online P&C Insurance Company. These are in addition to the green bonds that Moody’s solely rated for China Construction Bank (Hong Kong) and China Merchants Bank (Hong Kong) and the blue bond for Industrial Bank.

The Corporate Rating Agency of the Year Award goes to Fitch as it was able to assert its rating capability in this sector by supplanting the other rating agencies in a number of transactions such as those for State Grid Corporation of China, Hysan Development Company, PTT Exploration and Production, Power Construction Corporation of China, China Aoyuan Group, and Starhill Global Reit. It also rated several first-time corporate issuers such as Sinosure, Tencent Music Entertainment Group, and Contemporary Amperex Technology Company.

Moody’s is voted as the Investment Grade Rating Agency of the Year with strong participation in rating high-grade credits across corporate, financial institution, sovereign and quasi-sovereign sectors. These include deals for Republic of Korea, Republic of Indonesia, Sinopec Group, Petronas, Posco, Kepco, Axiata Group and Singapore Telecommunications.

High-yield issuers

Moody’s also repeats as the High Yield Rating Agency of the Year. It earns commendation for its covenant analysis, which is described as important when analyzing non-investment grade credits. The agency rated several high-yield corporate issuers on a sole basis in 2020, including deals for Greenland Holding, Yincheng International Holding, Powerlong Real Estate, Golden Wheel Tiandi Holding Company, and China Fortune Land. Among financial institutions, Moody’s rated the first AT1 capital securities in the Philippines by RCBC and the perpetual AT1 capital securities by Chong Hing Bank.

Moody’s likewise rated several first-time high-yield issuers in 2020 such as Lalitpur Power Generation Company of India (Ba3), Pakistan Water and Power Development Authority (B2), Laos (B3), Sinchuan Languang Development Company (B1), Rongan Property Company (B2), Sinic Holdings (Group) Company (B2), and Wisdom Education International Holding Company (Ba3), all from China

Backed by a team of credit rating analysts dedicated to asset-backed securities, S&P Global Ratings maintained its competitiveness and is once again selected as the Structured Finance Rating Agency of the Year. S&P Global is the only rating agency that rated the two euro-denominated social covered bonds issued in 2020 by Korea Housing Finance Corporation.

It also assigned the sole international rating for a number of onshore Chinese auto loan securitization, including those for Volkswagen Finance (China) Company, Beijing Hyundai Auto Finance Company, Genius Auto Finance Company, and BMW Automotive Finance (China) Company.

Country awards

By country, the award for the Rating Agency of the Year in Bangladesh goes to Credit Rating Information and Services Limited (CRISL), which has the distinction of being the first credit rating company in the country to get ISO (International Organization for Standardization) certification – obtained in 2019 – for being compliant with the requirement in the area of credit analysis and risk assessment services.

CRISL developed in 2020 three separate rating methodologies for real estate and construction, fast-moving consumer goods (FMCG) and garment sectors. It conducted 4,987 ratings between January and October 2020, of which 100 resulted in rating upgrades based on the companies’ fundamentals, expansion plans, future cash flow, and business prospects. Another 36 resulted in rating downgrades on the back of deterioration in company’s fundamentals, weak cash flow, and operational and business risks, among others.

For the third consecutive year in 2020, Malaysian Rating Corporation (MARC) wins the Rating Agency of the Year accolade for Malaysia. It rated a number of sustainable finance transactions during the period, including the Universiti Teknologi MARA (UiTM) Solar Power Dua green SRI sukuk amounting to 100 million ringgit (US$24.75 million), Spark Energy Asean green sukuk of up to 220 million ringgit, and the Leader Energy Asean SRI green sukuk of up to 260 million ringgit. It also rated some of the biggest deals arranged in the domestic capital markets, such as those for Sime Darby Property, Bank Pembangunan and MRCB.

What should enhance MARC’s rating capability going forward is its partnership forged with Moody’s, which acquired a minority stake in the company. Moody’s investment strengthens MARC’s position as a leader in the sukuk market and deepens its commitment to the sustainable development of Malaysia’s capital markets. The strategic partnership will also ensure the realization of more synergistic opportunities in other ratings-related businesses.

Meanwhile, based on numerous investors’ feedback, and on recent actions taken by Chinese regulators, The Asset is not recognizing any credit rating agency in China this year for The Asset Awards. The Asset will review the market for China credit rating agency in the coming year especially as regulators open the credit rating sector to international agencies to enhance the industry’s capability, For the complete list of winners, please click here

The virtual awards ceremony will be held on 18 March, 2021, please reserve your place by contacting events@theasset.com

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