1. Can you tell us about S&P’s work in
the region?
S&P has been active in the Middle East for
more than 30 years, rating sovereigns, banks,
government institutions and corporations,
but we have only been on the ground with a
presence in the Dubai International Finance
Centre (DIFC) since 2007. We started with
three people, since then we have seen rapid
growth. We expect to have 28 employees by
the end of this year and that growth is all for
the right reasons. A lot of it is redeployment
of analyst core talent, moving people out of
Europe who were previously covering the
Middle East, but just moving them much closer
to where they should be. Two-thirds of those
people are in ratings, the rest are in two of our
sister businesses, S&P Capital IQ, and what is
now S&P Dow Jones indices. S&P took a 74
percent stake in Dow Jones in June this year
so that business now has US$6 trillion (QR21
trillion) of assets tracked globally. We have
full cross practise analytical representation,
meaning that we structure our rating business
by practice groups.
Are the number of organisations entering
into your credit rating growing?
At the moment we have 140 public ratings.
In addition, there are always going to be private
and confidential ratings and we see very healthy
growth in the medium term. That has a lot to do
with the natural development of capital markets
and domestic markets, and also growth within
the foreign currency market. We also see a lot of
The role of credit ratings
agencies in Qatar’s economy
Financial Services
BUSINESS
INSIGHT
TheEDGE80
TheEDGE spoke exclusively with Stuart Anderson, managing director
and regional head of Standard & Poor’s for the Middle East regarding
the role credit ratings agencies can play in strengthening the financial
infrastructure of firms and Qatar’s financial sector as a whole, by
providing confidence to issuers and investors.
activity in the project space.
The primary role of a ratings agency is
ensuring that investors are comfortable. There
are disconnects: governments and sponsors
to some extent remain reticent to provide
unconditional support in the early build up
phases, but the region has what I call high
quality challenges and Qatar is absolutely in the
middle of that, with funding requirements that
are ambitious.
Have you experienced these problems
elsewhere in the world? A combination of
massive wealth, reticence of information
and lack of transparency – what are the
challenges?
I spent a lot of my career in East Asia, and
we all went through the same issues there. Hong
Kong is a great example of a city-state; there are
many similarities between the two. Singapore is
another example.
These city-states share core commonalities.
One thing that Hong Kong did which applies to
this region is the way in which the government
took a very positive view towards embarking on
a borrowing programme as a sovereign in order
to develop a domestic bond market. And they
built a very robust 10 year curve. So I think that
there is certainly a very strong precedent.
Another area is the whole projects space
and how this is funded. The number that has
been touted is US$1.9 trillion (QR6.9 trillion) of
projects, of which US$750 billion (QR2.7 trillion)
is core energy projects. All this comes down to
how much can be funded by traditional project

2. in projects have questioned why they are being
asked to come in and invest onshore, whilst the
sovereign wealth fund is investing offshore in
lower political risk environments.
How do you see credit ratings changing in
the future?
Our research team in London have looked
at long term outlooks for ratings, stretching
out to 2035 or 2040, and there is a scenario
whereby there could be no AAA sovereigns
left in the world. The fiscal burden of health
care and pensions with ageing populations
could quite possibly cause many countries
to lose their AAA or even their AA status. In
this respect, the AA rating that Qatar holds is
getting relatively stronger.
There is a large young population in the
region, how will that affect the future?
Certainly youth employment is a
significant issue, as is financial inclusion. If
you look beyond the wealthy Gulf states, the
Middle East and North Africa region can be
divided in two, the oil states, those with the
hydrocarbon endowment, and those without.
It is a tale of two halves. If you look at some of
the countries such as Egypt, Lebanon, Jordan
just a few that are closest to the Gulf region,
economic management is a major issue, as is
youth unemployment.
Qatar Central Bank has recently set up its
own internal ratings agency. What are your
thoughts on that?
We welcome free and fair competition
and initiatives to develop local currency bond
markets. We equally believe that the quality,
independence, comparability and global
coverage offered by our ratings will continue
to be critical in helping to raise funds in
international markets for Qatari debt issuers.
S&P has a successful track record in the Middle
East, with its ratings expertise in the region
built on a combination of global analytical
insights and a deep understanding of local and
regional issues.
scenarios if they were looking to restructure their
balance sheet.
What we also offer is private ratings with
family businesses. We benchmark them against
the competition that does have public ratings.
In this instance, they may be benchmarking
themselves against larger corporates, but it is a
way in which shareholders maintain management
discipline. So when we publish a new rating it
is not necessarily true that the rating has just
been determined, it could have been in place for
some time but was just never published.
How do you separate yourself from other
rating agencies?
What differentiates us is that we are very
rigorous, disciplined and we follow very tough
criteria. Our criteria are also very transparent,
which provides a uniform benchmark globally.
We are additionally looking at developing
our regional rating scale and looking to explore
opportunities within the Middle East market for
rating local corporates, which may potentially
involve a different rating process. But at this
stage it is very much about our global criteria.
How important are credit ratings?
The feedback that we receive is that
more than 50 percent of investors would not
contemplate investing in an unrated security,
and they find huge value in a rating being
delivered by certain names such as S&P.
There has been a noticeable uptake in
inward investment as Qatar tries to
establish itself as a financial hub, are you
seeing a noticeable uptake in this?
There are two parts to inward investment,
one is the fact that Qatari banks are increasingly
funding themselves from offshore.
The other is around what multinationals are
investing in. I think Qatar potentially faces a
perception challenge in this regard whereby in
Qatar there is a very successful sovereign wealth
fund that has very high profile global investment
activities. Multinationals who have been asked to
invest tens if not hundreds of millions of dollars
TheEDGE 81
BUSINESS
INSIGHT
Multinationals asked to invest in projects have questioned
why they are being asked to come in and invest, whilst the
sovereign wealth fund is investing offshore in lower political
risk environments.
finance providers. European banks have pulled
back substantially from this market, even from
Qatar, and they probably won’t return in the
numbers that were there before, so funding can
be taken up to an extent by the regional banks.
The other interesting longer term story for S&P
is family businesses.
You mentioned the reticence in the
working environment, how do you explain
rating agencies and convince family
run businesses that releasing private
information could work to their advantage?
Rating agencies typically sit as an
intermediary between investors and issuers. The
business model that we employ is the issuer pays
model. So an issuer of a bond for example would
pay us fees. Our role is to ensure that investors
have access to an assessment of companies’
credit positions that are independent, objective
and have a high degree of integrity, and there is
a strong brand value in this.
Our work with family businesses is an
interesting example of how value is generated
by a rating, not just from these businesses
being able to raise capital, but also to take
a rating and to work with it. If a company
comes to us and states that they want a bond
issuance in two months (and we have never
dealt with the counterparty before and it does
not have a rating) that would be completely
unrealistic. We would generally encourage any
private group that is new to the rating process
to think about this at least a year in advance,
if not longer.
How do credit rating agencies play into the
framework of family run businesses?
It’s not just about raising money for family-run
businesses in the Gulf, it is also about what the
whole rating process can help to achieve in terms
of structuring family businesses appropriately.
Many family businesses have a high concentration
of wealth in a single unit and the rating process
can help to establish disciplines and ground
rules that prepare the company for any financial
scenario. It is the rating on the company that
gives a clear indication as to our view, not only the
financial condition of the company but also the
quality of the corporate governance.
Do you advise on how organisations can
improve their rating?
We do not advise, we have conversations,
but never offer full advice. What would usually
happen is a counterparty would come back
with scenarios, and we would subsequently rate