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Hong Kong Regulator Talks to S&P Over Nine Dragons Ratings

June 16 (Bloomberg) -- Hong Kong’s corporate regulator is in talks with Standard & Poor’s after it withdrew its rating on Nine Dragons Paper Holdings Ltd., controlled by China’s richest woman, during trading hours.

“We are in discussion with S&P to get a better understanding of the circumstances of the release,” Jonathan Li, a spokesman for the Hong Kong Securities and Futures Commission, said by phone today. “We have no further comment at this stage.”

Nine Dragons shares plunged after S&P withdrew its rating at around 2 p.m. Hong Kong time on June 14 because of “insufficient access to management”. Regulators and investors have increased scrutiny of Chinese companies traded overseas amid accounting allegations against Longtop Financial Technologies Ltd., Chaoda Modern Agriculture (Holdings) Ltd. and Sino-Forest Corp.

“The SFC should prohibit the credit rating agencies it regulates from releasing announcements about listed companies during market hours” because the rating is based on inside information, David Webb, publisher of and an independent investor based in Hong Kong, said in a note dated June 14. “It can lead to unfair and disorderly markets.”

Cecilia Ho, a spokeswoman for S&P in Hong Kong, declined to comment on the talks with SFC. Nine Dragons fell 3 percent to close at HK$6.24 today in Hong Kong. Its shares declined 17.4 percent on June 14 after the ratings were withdrawn.

Nine Dragon chairwoman Zhang Yin, China’s richest woman, bought 3.8 million shares of the company at an average price of HK$6.451 each yesterday, boosting her holding to 67.26 percent from 67.17 percent, according to a filing to the Hong Kong stock exchange.

Rating Agencies

Credit rating agencies are hired by companies under contract, the debt issuers, to have “privileged access” to information in order to produce ratings, Webb said. By comparison, research analysts work only with published information, he said.

S&P withdrew its BB long-term corporate credit rating on Nine Dragons and its BB- rating on the outstanding senior unsecured notes. BB is S&P’s second-highest non-investment grade while BB- is one level lower. The rating company hasn’t been able to meet with management in the past six months though it has regularly requested meetings, analyst Frank Lu said.

S&P pulled its ratings without notifying Nine Dragons, Daisy Sun from Wonderful Sky Financial Group Ltd., which handles Nine Dragons’ media relations, said yesterday. The ratings were for $300 million worth of bonds sold in 2008, out of which $48 million are outstanding, Nine Dragons said.

The company yesterday said it received a proposal from Moody’s Investors Service to assess its debt after Standard & Poor’s withdrew ratings. The discussion is still under way, Sun said today.

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at

To contact the editor responsible for this story: Andrew Hobbs at

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