Chinese companies get red flags from Moody's
12 July 2011
A new report put together by Moody's Investors Service has sounded a warning saying the finances and governance of more than five dozen Chinese companies raised "red flags" including high concentrations of family ownership, frequent changes in auditors and over-ambitious business and financial strategies.
The credit ratings agency has developed 20 criteria to assess the risks associated with emerging-market companies.
In a report released yesterday, the ratings firm said that increased scrutiny of Chinese companies by the US Securities and Exchange Commission and other agencies prompted it to develop a layer of analysis going beyond the normal ratings.
The SEC recently conducted a review into the quality of financial reporting from publicly listed Chinese companies.
"To address investors' concerns and provide transparency on our approach to ratings, this report identifies warning signs -- so-called "red flags" -- for our rated, high-yield, non-financial Chinese companies," Moody's said.
Moody's said it planned a follow up, with a report for other issuers in Asia.