Dagong bond rating agency taken over after licenses suspended

The Financial Times reports that the Dagong bond rating agency has been taken over by a state-owned investment company after regulators suspended its licenses for lax corporate governance and conflicts of interest. Dagong came to my attention several years ago when, in an apparent fit of pique after being denied status as a Nationally Recognized Statistical Rating Organization by the SEC in 2010, it downgraded its rating of U.S. government debt to a single A with a negative outlook (https://perma.cc/G3PD-VHKG). At the same time, it gave a higher rating to the bonds issued by a local government financing vehicle in Loudi, Hunan Province, even though the LGFV valued the real estate collateralizing the debt at prices similar to those of Winnetka, Illinois, where local household income is about 100 times that of Loudi (http://bloom.bg/q0AV7P). Another credit rating agency, China International Capital Corp., gave the Loudi bonds its third-lowest rating, a non-investment grade.

These two examples alone show that Dagong was not a serious rating body from the very start. Remember that if it returns to business with the same management.

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