Chinese rating agency opens office in Europe

Domestic rating agency Dagong Global Credit Rating officially started conducting business in Europe Thursday, becoming the first Asian rating company to do so and posing a challenge to US firms' domination of the European market.

Dagong Europe won approval on June 6 from the European Securities and Markets Authority (ESMA) to run a credit ratings business in Europe starting from Thursday.

Dagong Global has a 60 percent stake in the Milan-based joint venture, with private equity fund Mandarin Capital Partners owning the rest

"We prepared for about 10 months to get the approval from the ESMA, and our European business will focus on credit ratings of corporate clients and financial institutions," Gao Zhen, managing partner of Mandarin Capital, told the Global Times Thursday.

"The launch of Dagong Europe will bring some fresh blood to Europe's credit rating market, which is dominated by three US rating agencies, Moody's Investors Service, Standard & Poor's and Fitch Ratings," she said.

Analysts said the move represents significant progress for Dagong, especially after the US Securities and Exchange Commission refused to recognize Dagong's ratings for use in the US in September 2010.

"As the first Asian rating agency to operate in Europe, Dagong still needs time to gradually build up its authority and credibility in the local market," said Sun Fei, director of the Chinese Enterprises Overseas Development Center.

Getting approval from the ESMA is the "first step" toward this, Sun noted.

The ESMA is more open to newly established credit rating agencies and encourages healthy competition in the sector, according to Gao.

For instance, it requires companies to mandate at least one credit rating agency that does not have more than 10 percent of the total market share if the company wants to have more than two ratings, which has offered business opportunities to emerging new agencies, Gao noted.

She said the company is seeking European clients that already have or intend to have business connections with China, especially those engaged in the finance, energy and manufacturing sectors.

"Those who plan to sell bonds to Chinese investors or get loans from Chinese financial institutions are our potential clients," she said. "And our research will provide investors with a different perspective from the three US rating agencies based on our self-developed methodologies and a very experienced local European team."

Dagong Europe's move is also in accordance with China's efforts to cultivate its homegrown credit rating agencies.

Pan Gongsheng, deputy governor of China's central bank, said at a forum in September that China should reduce its dependence on foreign credit rating agencies and encourage the development of its own companies in the sector.

"We're also busy preparing to team up with US and Russian companies to launch a rating agency in Hong Kong on June 25," said Zhang Jun, a Beijing-based spokesman for Dagong Global.