Standard & poor's (S&P) assigned investment grade ratings to both Qatar and Oman at the start of February, the first time the US agency has released ratings for any Gulf state.

However, the move has heightened debate about the ratings published by Moody's Investors Service for all six Gulf states at the end of January, which differ from S&P's assessments (MEED 9:2:96).

S&P gave Qatar a long-term rating of BBB, which is above investment grade, with an outlook described as stable. Oman's outlook was also described as stable, although the longterm rating was lower than Qatar at BBB-, which is also above investment grade. In comparison, Moody's placed Qatar below investment grade and below Oman. However, Oman achieved an investment grade from Moody's, one notch higher than the equivalent rating which the sultanate received from S&P.

S&P says the decision to place Qatar in the investment grade category, and above Oman, was based on a long-term view of prospects for the Qatari economy. In the report which accompanied the rating, S&P said Qatar's public external debt is expected to double by 1999 from 59 per cent of exports in 1995 as the country develops its gas reserves in the North Field. However, S&P says the gas exports, expected to begin in 2000, will help to stabilise the government's revenues in the long term.

S&P says the ratings were issued at the request of the countries involved, and provide a rating of the government's sovereign creditworthiness. 'All of our ratings are carried out with the full co-operation of the government.

That's the only way we feel we can do a rating, because of the attention to detail required for a rating,' says John Chambers, director of S&P's in New York.

This differs from the approach taken by Moody's, which issued its ratings without the consent of all the Gulf states. The Moody's ratings were also released as credit ceilings on future institutional ratings, and did not rate sovereign debt. 'Maybe there is a message that Moody's wants to get across,' comments the head of one Saudi bank. The rating it assigned to Saudi Arabia, which was just above investment grade, has been described by some analysts as too low.

Analysts say Moody's may hope to encourage more openness on the part of Saudi Arabia and other Gulf governments by encouraging them to provide the ratings agencies with more information that could lift their current rating. S&P also acknowledged the need for more openness in its rating of Qatar. 'A higher degree of disclosure and transparency on public finances could affect favourably S&P's opinion on Qatar's credit standing,' the S&P report said.

Both Moody's and S&P are developing their ratings business in the Middle East. Moody's has made the biggest commitment so far, by opening an office in Limassol to target institutions in the region, although the company has yet to issue any institutional ratings from the Cyprus base.