S&P Analyst: Governance Crucial to Israel's Credit Rating

In May, Standard & Poor's lowered Israel’s local-currency credit rating but left its foreign-currency credit rating unchanged.

Israel needs to address issues such as its governance if it wants to maintain its credit rating, a Standard & Poor's analyst from the team that determines Israel's rating said yesterday.

"Israel's recent credit rating increases, in 2007 and 2011, went against the trend of downgrading countries over those years, and reflected an absolute and relative increase in Israel's financial strength. This was a result of three main trends: quick economic growth, a positive balance of payments and the reduction of government debt," said Standard & Poor's main analyst for Israel's credit ranking, Elliot Hentov, at a meeting with capital market players yesterday morning.

In order to maintain its ranking, Israel has to address several issues: "The weaknesses that still exist in the governance structure, the geopolitical and security situation, the budget balance and the national debt," said Hentov, S&P's associate director of sovereign ratings in Europe and the Middle East.

"Success brings on other risks and challenges, namely a bubble in asset processes, an influx of foreign money and the appreciation of the local currency," he said.

"All these can harm stability and limit the Bank of Israel's monetary flexibility," he added.

Yuval Torbati, a manager in company rankings at S&P Maalot, addressed the connection between corporate credit rankings and the country's ranking. S&P Maalot is a fully-owned subsidiary of the global Standard & Poor's.

"Contrary to the commonly held opinion, a company can have a higher ranking than the country in which it is located," he said. Currently, 137 companies in 22 countries fall into this category, he said. They include Canon in Japan, Tata in India and Microsoft in the United States.

"In Israel this phenomenon doesn't exist due to the fact that there aren't Israeli companies whose status justifies this," he said. "Therefore, Israel's current credit rating, which is relatively high in global terms, is not a limiting factor in Israeli companies' credit ranking on a national or global level."

In May, Standard & Poor's lowered Israel’s local-currency credit rating but left its foreign-currency credit rating unchanged.

The foreign-currency rating was confirmed at A+, with a Stable outlook. But the local-currency rating, which had previously been higher, was cut to the same level as the foreign-currency rating, A+.
 

Ariel Shalit