(Yicai Global) Dec. 29 -- S&P Global China Ratings yesterday tagged China State Construction SilkRoad Construction Investment Group with an Aspc level in the first credit rating China's first such agency wholly owned by foreign capital has ever issued to a non-financial Chinese firm.

China State Construction SilkRoad Construction Investment, based in Xi'an in northwestern Shaanxi province, is a wholly-owned unit of global engineering giant China State Construction Engineering, the world’s biggest construction company by revenue.

S&P Global China Ratings' highest credit score is AAAspc. The Aspc rating reflects CSCEC SilkRoad's strict investment discipline and decision making, higher project investment quality and better comprehensive strength in areas where its projects are located, the S&P Global China unit said in its report.

"The rating is the first public corporate entity rating from a foreign agency, and it is a non-AAA rating," a source within S&P Global China Ratings told Yicai Global. "The agency only rated financial institutions such as ICBC Financial Leasing before," the source said, adding, "The rating median is generally BBBspc, which means the issuer can have relatively stable credit performance in the next two years or so without extreme changes in the economy and external environment.”

Overall, CSCEC SilkRoad's financial risks are controllable and the firm's leverage will steady at current levels, the agency noted. All its projects are under construction and CSCEC SilkRoad will stay at a high level of leverage in future as it still needs to invest in them, S&P Global China Ratings expects. CSCEC will not ease the strict management of its units' investments, operations and finances, and this will allow the parent to timely track developments and rush in support in extreme situations, it said.

Rating Obsession

The “”spc“” suffix largely distinguishes credit scores from the Chinese unit and the US parent. The methodology used in China is the parent’s creation, but the “”Aspc“” rating is no mere equivalent to the domestic “”A“” one.

Bonds rated AAA in China are expected to be classed between BBB and AA+ by S&P Global Rating, Shenwan Hongyuan Securities stated in an earlier analysis. In the midterm, bringing in external ratings sends a strong signal that regulators will continue to bring out measures to standardize the domestic business. This will definitely narrow the gap between the Chinese and overseas yardsticks and check rampant rating inflation.

Foreign-funded agencies still face great challenges in China. Regulators have long used external ratings as the basis for much of their business guidance, contributing to issuers’ fixation on “”AAA,“” Yicai Global's sister publication Yicai earlier reported. For instance, issuers must still gain the AAA or AA+ external score to qualify for bond offerings and this may inflate ratings or bar companies graded below AA+ from issuing debt instruments.

A wholly-owned unit of S&P Global Ratings formed on June 27, 2018, S&P Global China Ratings plies the credit rating and evaluation and related businesses in China's bond market.

Editors: Xu Wei, Ben Armour, Xiao Yi