South Korea's top credit appraisers are found to be granting inflated ratings for bonds issued by local firms, data showed Monday, sparking concern for their trustworthiness.
Three local appraisers -- Korea Ratings Co., NICE Investors Service Co. and Korea Investors Service Co. -- have granted top ratings of between "AAA" and "A" on 78.9 percent of corporate bonds floated here as of Friday, market data showed.
Korea Investors Service has given such investment grades on 82.6 percent of bonds evaluated, trailed by NICE Investors Service with 80 percent and Korea Ratings with 74 percent. Each evaluates bonds issued by about 380-390 local firms.
In contrast, credit appraisers granted subprime ratings of between "BBB" and "B" to only 20 percent on average of the bonds evaluated, and grades of "CCC" and below accounted for less than 2 percent of the total assessments.
The figures are in stark contrast to those posted by Moody's Investors Service Inc., which granted top grades of "A" or higher on only 27 percent of its portfolio of 4,800 firms, while ratings around the "B" bracket accounted for 62.6 percent, according to data by Korea Investors Service.
While steelmaker POSCO and No. 1 carmaker Hyundai Motor Co. were tagged with top-tier marks by local appraisers, Moody's granted the firms with "Baa1" grade, which is comparable with local appraisers' "BBB+" level.
Analysts said inflated ratings came as credit appraisers focused only on companies' balance sheets, rather than also taking into account the global market conditions and health of the industries.
Analysts also warned that the overvaluation of corporate bond ratings can give false signals about a company's finances and subsequently mislead investors.
"If a company floats bonds at low yields based on inflated ratings, it will cause market confusion as investors will be betting on high-risk debts at unreasonable returns," said Kim Ik-sang, a researcher at Hi Investment & Securities Co. (Yonhap News)
