Russian, Chinese Rating Agencies Replacing Western Agencies In Eurasia

Russian and Chinese credit rating agencies are replacing Western ratings agencies as demand for financial intelligence increases throughout Asia. Companies such as Moodys, S&P, and Fitch all exited the Russian market in 2022, when sanctions were imposed. Their work in Asia, and China has also been historically erratic, with a lack of local connections and political bias creeping into their work. All are based in the United States.

Credit ratings agencies are used to assess the financial health of businesses and can be a useful barometer of fiscal stability and outlook. Banks refer to credit agencies when assessing big ticket loans, while investors refer to them when assessing share prices.

In Russia, the dominant position in this market – the fourth largest economy in the world – has been taken by ExpertRA based in Moscow. The firm was established in 1997. In China, now the world’s largest economy, Chengxin International Credit Rating Co. (CCXAP), has become the dominant player. It is based in Beijing and was founded in 1992. Moody’s owns a 30% stake in CCXAP.

These businesses often overlap in their ratings of different businesses, and when dealing with multinational corporations (MNC) may provide ratings on specific subsidiaries or financial tools. CCXAP for example specialises mainly in the rating of Bond Issuances, while ExpertRA provide fiscal health overviews.

An example is the recent ratings provided by both to Russia’s JSC INK-Capital, the main shareholder of the Irkutsk Oil Company. The Irkutsk Oil Company is one of the largest independent hydrocarbon producers in Russia, and conducts geological exploration, prospecting and development at 53 subsoil sites in the Irkutsk region, Krasnoyarsk Territory and Yakutia. A CCXAP specialist subsidiary, Chengxin Green Finance Technology (CCXGF), provides green finance and ESG related services and conducted research into INK-Capital.

ESG (Environmental, Social, and Governance) is an investing principle that prioritizes environmental issues, social issues, and corporate governance. Investing with ESG considerations is referred to as responsible investing or, in more proactive cases, impact investing. CCXGF has assigned an ESG rating to INK-Capital, the first time a Chinese agency has rated a Russian company.

INK-Capital received an ESG rating of BBB+, with the corporate audit conducted across 17 criteria related to environmental, social, and governance aspects. That rating is 14% higher than the average industry score of public companies in the oil and gas sector.

At the end of 2023, Expert RA also assigned INK-Capital with an ESG rating of ESG-III (a) with a stable outlook.

The development of regional ratings – and the concurrent ability for Russian and Chinese rating agencies to conduct such work is a growth market. What has happened since 2022 and the massive imposition of sanctions upon Russia has disrupted global financial markets. The traditional, Western service providers no longer service Russia, which distorts the overall picture when the country is a significant global importer and exporter. The same is true of China, which while not sanctioned, has the significant potential to become embroiled in trade disputes and tariff wars with the United States in particular. China is also by far the world’s largest exporter. Applying Western rating agency values on Chinese companies for example would reflect the US position, which is unlikely to accurately reflect the status of a Chinese business whose trade is solely within Asia and not the West. They certainly would be incapable of assessing the fiscal risks or rewards of China-Russia bilateral trade, a market worth US$260 billion.

Consequently, we can expect to see the development of regional credit rating agencies throughout the Eurasian region, and collaboration and analysis conducted with other major countries, such as India, whose dominant ratings agency is India Ratings & Research although a hiccup here could be that the company is owned by Fitch. The emergence of non-Western, regionally influential ratings agencies throughout Asia and the Global South can be expected to become a new global industry. BRICS Credit Ratings for example can be expected to materialise very soon – the group has already overtaken the G7 in trade volume and GDP growth.