South Korea’s credit rating market that has been dominated by three companies for the last three decades is about to face a structural change as the government is expected to allow a newcomer, while global rating agency Moody’s Investors Service Inc. upped investment to fully-own a local player.

According to sources on Sunday, the Financial Services Commission will hold a public hearing due on July 28 to upgrade the regulatory system in the domestic credit rating market. A fourth player in the market and reform in the disclosure system are some of the topics for the hearing.

Industry experts have been calling for a newcomer after existing players have lost credibility for their belated and wrong ratings on Tongyang Group that went bankrupt in 2013. The FSC will arrive to a decision next month.

Strong candidates for the fourth credit rating agency are Seoul Credit Rating & Information and financial information provider FnGuide. Currently, Seoul Credit Rating is eligible to evaluate commercial papers and asset-backed securities and it will become full-service rating agency if it adds corporate bond to its portfolio. Seoul Credit Rating already separated its evaluation business to prepare for competition. FnGuide also recruited a vice president from Korea Ratings to set up a credit rating business.

Existing players are busy to up their competitiveness before the new entry. U.S.-based Moody’s recently agreed to buy the entire stake in Korea Investors Service from NICE Group for around 80 billion won. The two agreed to sign a definitive agreement as soon as possible. If the deal is done, it will be the first case that a global credit rating company wholly owns a Korean credit rating company. To date, Moody’s has operated its Korean business with the minimum stake (50 percent interest plus one share) to ensure its management rights for Korea Investors Service.

Moody’s investment seems to be intent on expanding its dominance in Korea, the second largest Asian credit rating market behind Japan. It feels the need to go aggressive not to miss a business opportunity in a transitional period, while defending its share in the Korean market. The growing popularity of dollar-denominated bonds issued by Korean companies in the wake of Britain’s decision to leave the European Union also affected the investment decision.

Industry watchers say a high level of dividend income from Korean credit rating companies is also attractive to foreign investors. The local credit rating market has been dominated by three companies - NICE Investors Service, Korea Ratings and Korea Investors Service. These companies pay out 90 percent of earnings in dividends. Korea Investors Service allocated 6.6 billion won from last year’s 7.3 billion won profit for dividend payout.

By Jeon Kyung-woon and Song Kwang-seop

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]