Recognition of R&I Ratings for LAF and Profits Tax Concession Purposes

The Hong Kong Monetary Authority (HKMA) announced today that the ratings of Japan Rating and Investment Information, Inc. (R&I), other than those assigned by the agency on its shareholders and their related companies, will be recognized with immediate effect by the HKMA in assessing the eligibility of Hong Kong dollar denominated debt issues as Repo securities for discounting under the Liquidity Adjustment Facility (LAF) as well as for the purpose of the profits tax concession scheme under section 14A(4)(b) of the Inland Revenue Ordinance. At the same time, the recognition of ratings of JBRI is revoked for both LAF and profits tax concession purposes.

"In evaluating the ratings assigned by a rating agency, the HKMA is concerned about the degree of independence of the agency from the entities it rates. Some of the shareholders of R&I are financial institutions which are rated by the agency. We need some time to study how R&I internal control system operates to ensure the independence of the rating process. Thus, for the time being, those ratings assigned by R&I on its shareholders and their related companies and ratings on debt issues guaranteed by those entities will not be accepted. Related companies are defined here as the holding company, the subsidiary companies as well as the subsidiary companies of the holding company of any shareholder," an HKMA spokesman explained.

The minimum requirements in respect of the R&I ratings recognized by the HKMA for LAF purpose are A+ for bank issues and AA- for non-bank issues. The minimum requirement for profits tax concession purpose is BBB+.

R&I was formed through the merger of JBRI and Nippon Investors Service, Inc. (NIS) on 1 April 1998. Previously, ratings of JBRI were recognized for LAF and profits tax concession purposes. JBRI started its rating business in 1975 and was incorporated in 1985. NIS has conducted its rating services since 1985.

In addition to R&I, four other credit rating agencies have been recognized by the HKMA for LAF and profits tax concession purposes:

The HKMA reserves the right to make adjustments to the list of recognized rating agencies and the minimum rating requirements from time to time.

Hong Kong Monetary Authority

7 April 1998