Tomorrow I will be giving a lecture about Rating Agencies at the Faculty of Economic Sciences at the Universitat Internacional de Catalunya. I teach art and culture at the Faculty of Humanities, but this time I will be lecturing on an economic topic, given my experience in investor relations.
Standard & Poor’s, Moody’s and Fitch Ratings are collectively known as ‘The Big Three’ Credit Rating Agencies. To put it very simply, these agencies evaluate the financial strength of companies and entire countries, assigning a certain grade (rating) to each. With the amount of funds moving around the planet every day, the international investors depend –among other things- on the rating reports to make big investment decisions. If a company or country has a low rating, it means it would be a risky investment, so, either no one would lend it or invest in it, or they would do but at a very high price, to make up for the higher risk that they assume by lending it or investing in it (the higher the risk, the higher the return).
Do you know the sovereign rating for your country?
The rating of mine (Egypt) is B, while that of the country where I live (Spain) is BBB-.
What does that mean?
Egypt’s economy is rated as ‘junk’ or ‘speculative’, while that of Spain is the lowest in the investment grade, only one ‘push’ away from joining Egypt in the junk category. Comes as no surprise given the economic crisis in Southern Europe.