A Comparative Study On Credit Rating Methods Of China 's Iron And Steel Industry

Credit rating is a kind of expert advice on the risk of the ability to repay the debt for individuals or economic organizations. The theory and methods had already become mature after hundred years of development. Nowadays in international credit rating, Moody’s investor services, Stand & Poor’s(S&P) and Fitch international almost monopolized the major market share. As the credit rating is a senior product related to the pricing of financial products, which even has a significant meaning to capital market and national security. However, rating industry in China started late and had a significant gap in rating philosophy and methods compared with foreign giants. Learning the advanced experience and drawing lessons from them has direct realistic significance on our current development in credit rating market.Depending on the industry to which the enterprise belongs, credit rating agencies both at home and abroad had formed their specific rating process and method according to the characteristics of the industry. To refine the research content, this thesis selects the rating method on steel industry as the research target. Firstly, the fundamental concept and the history development process of credit rating is simple introduced, the basic features of steel industry and industry risk factors are listed. In the analysis of the method in the major rating agencies, Moody’s, S&P, and China Chengxin Credit Rating Co., Ltd. (CCXI) are mainly referred. Specifically, the thesis compares the rating content and method both at home and abroad, also makes comments on their advances and limitations of each method. And then, the different rating methods of different agencies on steel industry are analyzed. After comparing the rating methodology between domestic and foreign agencies in steel industry we clearly find out that the differences in methods represent different opinion on the connotation of default risk in the business activities. Finally, combining with the case study of Baosteel Group, the credit rating reveals its fundamental significance to solve the problem of asymmetric information and to provide expert guidance of the default risk of enterprise for the social public based on the risk analysis of business operation.Taking into account the special status of steel industry, which is capital and technology intensive industry and affected by national macroeconomic policy, industrial cycle, upstream raw materials, downstream consumer market demand level, government support and many other factors in China’s economy, pure mathematical analysis or comparison of the industry cannot represent the whole credit risk. Only who have a thorough understanding of the source and effect of business risk based on the characteristics of the industry, business risk, corporate governance, financial indicators can form the accurate understanding of the overall risk of steel industry and fully reveal the credit risk. Then take the results of quantitative and qualitative analysis of the index into consideration can make a risk judgment on steel enterprises and finally form a proper risk evaluation.In a word, this thesis make a comparison between the public steel industry rating methods and point out Chinese rating agencies still a huge gap from the abroad. Through the comprehensive comparison on theory and method and combine with the case analysis of Baosteel Group, this thesis expounds the connotation of credit rating then put forward some specific suggestions for the current rating practice and the future development direction in China. Hope the comparison on the theory and method and the case study can make a positive contribution to the rating industry in China.