Moody's scrambles red flags amid China accounting concern
Moody's has rated 50 China-based companies according to its red flag system, as accounting fears dog US investors
ACCOUNTING CONCERNS at US-listed Chinese companies have spurred Moody’s into action. The ratings agency has screened more than 50 companies against 20 red flag categories.
Weak corporate governance, risky business models, fast-growth strategies, poor earnings quality and audit concerns would all trigger the flags, Reuters reports; 49 junk-rated firms triggered at least three alarms, with several tripping 10 or more.
“Our ratings already account for the inherent challenges in assessing these Chinese companies: their short history of operations, their diverse industries with limited peers for comparison, their concentrated family ownership structures and their high-growth environments,” said Moody’s.
Around 80% of companies operating predominantly in China are awarded junk ratings by Moody’s; this compares to China itself, which has a sovereign rating of Aa3, one of the highest investment grade levels.