Ratings agency Fitch has come under fire in an opinion piece published by Bloomberg for failing to recognise that a Chinese municipal government-owned coal operator failing its letter of credit (L/C) obligations should have prompted a downgrade.

Asian markets columnist Shuli Ren made the observation in an article that warns that the major ratings agencies may be repeating their enabling roles in the subprime mortgage crisis when investors bought troubled securitised products that would not have been marketed and sold without their seal of investment-grade approval.

Creditors committee

Chongqing Energy Investment Group faces difficulties paying its debts while the Chinese government is intent on slashing coal capacity.

The city's largest coal operator has now set up a creditors committee to attempt a financial restructuring.

Overdue L/C

The Bloomberg columnist points out that when Chongqing was overdue on an onshore L/C on 9th March and after the municipal government had ordered the closure of outdated coal plants, Fitch still had a BBB-investment-grade rating on it.

The ratings agency "should have seen the writing on the wall," she concludes.

Shuli's main focus is on the major ratings agencies failures to sufficiently warn against troubled state-owned China Huarong Asset Management after it failed to release its 2020 financials on time amid reports of a deep restructuring

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.