China's Dagong Credit Rating Agency Steamed Over NRSRO Delay

What you already know about China-based Dagong Credit Rating is that it’s caused quite the kerfuffle over sovereign debt ratings by ranking China higher than the US and other developed countries, like the UK and Japan, based on a formula assigning more weight to the fiscal health and GDP growth of countries.

What you may not know is that last year Dagong officially applied to the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO), of which now there are only 10 (all of which are either North America- or Japan-based), and now claims to be getting the run around.

According to Fortune:

“This is stirring stuff. But as is often the case with news out of China, the latest Dagong statement itself is a bit of a riddle. Has the firm actually been rejected, as it contends, or is Dagong simply posturing?

“An outright U.S. rejection seems unlikely. The firm applied in December 2009 with the Securities and Exchange Commission for status as a Nationally Recognized Statistical Rating Organization, or NRSRO – the designation under which Moody’s, S&P, Fitch and several other agencies have registered with the SEC.

“Dagong sought the NRSRO label even though it has no U.S. offices, rates no U.S. companies and has no U.S. customers. As a result, the SEC said it would have to hold hearings to determine ‘whether Dagong has a sufficient connection with U.S. interstate commerce to register as an NRSRO.’

“In April, the SEC said it aimed to settle the question by July, but the next month the commission extended that deadline to Sept. 23. The commission hasn’t issued a ruling, an SEC spokesman said Wednesday, and isn’t likely to do so till September — which seems to rule out the ‘rejection’ the China Daily article speaks of.”

Part of what’s interesting about this latest twist is that Dagong, which makes the point of having “global” in its name, wants to be “nationally recognized” in the US despite, as noted above, having little connection to the nation. Of course, the NRSRO agencies – well, at least Moody’s, Standard & Poor’s, and Fitch Ratings — have influence far beyond US borders… and at least Canada and Japan have both jumped on the NRSRO bandwagon… but it’s hard to see what advantages they’ve gained as foreign organizations designated NRSROs.

You can read more details in Fortune’s coverage of how China’s Dagong says the US rejects it.


Rocky Vega,
The Daily Reckoning