Most SMEs' private debts to be rated below AA-

Most of the private bonds issued by China's small and medium-sized enterprise are likely to receive a credit rating below AA-, Zhang Zhijun, general manager at China LianHe Credit Rating Co Ltd, said on May 30.

The private bonds offered by such companies are often referred to as "junk bonds". They tend to offer higher yields than other types of securities but come with greater risks and lower credit ratings.

In response to the State Council's call for small businesses to have more means of obtaining financing, the Shanghai and Shenzhen stock exchanges recently published rules that will govern the issuance of debt by SMEs.

In Shenzhen, only institutional investors with more than 10 million yuan ($1.6 million) in registered capital will be allowed to buy the junk bonds. In Shanghai, investors will have to have more than 5 million yuan in total assets to buy them.

Guotai Junan Securities Co Ltd estimated Chinese companies will issue between 150 billion yuan and 300 billion yuan worth of high-yield bonds in the next three years, amounts equal to between 30 and 50 percent of the corporate debts issued during the same period.

"Although the authorities have not yet required the bonds to be rated at the moment, it is a general trend for credit ratings to be introduced to show the different amounts of risk being taken on by investors," Zhang said at Beijing meeting.

China LianHe has already received rating requests from more than four clients, he said.

The majority of the bonds issued by SMEs are likely to be rated between AA- and BB, Zhang said, adding that the yields of the bonds are likely to be higher than 10 percent.

Also on May 30, China LianHe published credit ratings for the sovereign debt of five countries - China, the United States, Germany, Australia and Japan.

Four of them received the top rating of AAA in domestic and foreign currencies. Japan received a rating of AA+ in those categories.

"We evaluate a sovereign nation mainly by its ability to pay off debt," said Wan Huawei, LianHe rating director.

Zhang said the ratings that were issued for the five countries are only the first to come out and that ratings for another 20 to 30 countries will be published this year.