FINANCE MINISTER: QATAR TO GET AAA SOVEREIGN

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000649

SIPDIS

ABU DHABI FOR MATT EPSTEIN
CAIRO FOR ALEXANDER SEVERENS

E.O. 12958: DECL: 09/10/2018
TAGS: EFIN EINV ECON QA
SUBJECT: FINANCE MINISTER: QATAR TO GET AAA SOVEREIGN
CREDIT RATING NEXT YEAR

REF: A. DOHA 518

B. DOHA 331

C. DOHA 422

D. DOHA 603

Classified By: Amb. Joseph LeBaron for reasons 1.4 (b) and (d).

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(C) KEY POINTS
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-- Kamal anticipates that Qatar's current AA sovereign credit
rating will improve to the highest level, AAA, next year.

-- Qatar's Finance Minister is encouraging local banks to
raise capital now in order to help them avoid problems
plaguing U.S. financial institutions.

-- Qatar plans to make a significant investment in U.S. real
estate in the next three months via its sovereign wealth fund.

-- A new unified financial regulator will be formalized soon,
after the GOQ finds the right leadership. Within three
years, the local banking system and Qatar Financial Center
operations will be merged.

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(C) COMMENTS
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-- The press has been reporting for months on the imminent
announcement of a unified regulator. Our financial sector
contacts had previously indicated the hold-up was due to an
ongoing search for the right senior leadership.

--The GOQ likely wants to tread carefully with the right mix
of local and foreign leaders as it undertakes the daunting
process of opening Qatar's financial sector to full
international competition.

END KEY POINTS AND COMMENTS.


1. (C) During an introductory office call with Ambassador
September 9, Finanace and Economy Minister Kamal said he
expects Qatar's current AA credit rating will improve to AAA
next year. He said GOQ hedging for risk is based on
traditional hedges: (a) geographical diversification (moving
static oil and gas reserves into markets throughout the U.S.,
Europe, and Asia),(b) currency allocation (purchasing and
investing in a basket of currencies),(c) classic diversified
asset allocations, and, within each asset class: (d) sector
allocation.


2. (C) Kamal said he has been pushing over the last two years
for Qatari financial institutions to raise more capital. He
believes that the current turmoil in global financial markets
is due in part to the failure of U.S. banks to raise enough
capital three years ago, before there was a crisis.


3. (C) Kamal - who is also one of six executive board members
of the Qatar Investment Authority (QIA) - noted that Qatari
investments are approximately financed on a debt/equity ratio
of 70/30 percent. He added that the QIA often uses no debt
for its investments, depending on the sector, with real
estate deals usually leveraged and equities bought with no
debt. (Note: Other interlocutors, such as the QIA's Managing
Director, have told us that financing plays a significant
role in QIA transactions - see Ref A).


4. (C) Kamal noted that the Finance Ministry currently
budgets in one-year increments, assuming an oil selling price
of USD 52 per barrel for the current one-year increment.
Excess revenue is transferred to a stabilization fund which
is "in the hand of the Minister to play with." (Note:
Despite recently improved efforts at transparency, the opaque
nature of Qatar's budget/fiscal system renders it difficult
to determine what is formally included in government revenue
and budgeting, and what is diverted to current operations, a
stabilization fund, or other vehicles such as the QIA or a
generational reserve fund).


5. (C) Turning to GOQ efforts to encourage economic
diversification, Kamal noted that over 60 percent of the
economy's development is still government-driven. The GOQ
leadership recognizes the need for both a physical and legal
infrastructure which will facilitate a more diverse,

DOHA 00000649 002 OF 002


private-sector-led economy.


6. (C) Kamal relayed that the anticipated announcement of a
new, unified regulator for the financial sector (Ref B) will
be delayed "a little further" because the GOQ wants to
"choose the right people" for the board. He framed recent
GOQ overtures to other stock market operators (via the QIA)
as part of a coordinated plan to raise the management and
technological standards of the local market. (Note: Doha
Stock Market contacts told Econoff in August that they were
still fleshing out the form of their planned cooperation with
NYSE Euronext). Kamal said he anticipates Qatar's benefiting
from its tie-up with the London Stock Exchange, and it also
obtained a "right of first refusal" for new technology
developed by Scandinavian stock operator OMX.


7. (C) Kamal projected that in three years there will no
longer be a separate Qatar Financial Center, at which point
the combination of all the financial and regulatory systems
will be accomplished. Through 2012, Kamal anticipates
double-digit real growth (in line with IMF/World Bank
projections) and a decrease in Qatar's current 15 percent
level of inflation.


8. (C) He added that U.S. financial woes would not affect
Qatar as much as they had in past downturns, and Qatar is now
positioned to take advantage of cheap U.S. assets. Kamal
boasted that "I was the only one saying no" during internal
GOQ discussions over the past year about revaluing Qatar's
currency or depegging from the dollar. He expressed
vindication as a result of the dollar's recent recovery,
noting that Qatar's assets would have lost value had the GOQ
gone with the recommendation of the Amir's Economic Advisor
Ibrahim Ibrahim to delink from the dollar.


9. (C) As he and other interlocutors have noted (Ref C and
D),Kamal said he expects the QIA to make significant
investments in U.S. real estate in the next three months. He
also referred to a Qatari pension fund and local bank which
will create a joint fund to invest 40 percent of its equity
in U.S. real estate, with the other 60 percent split evenly
between investments in Europe and Asia.

LeBaron