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DUBAI, Oct 17 (Reuters) - Standard & Poor's has become the first foreign credit rating agency to obtain a licence to operate in Saudi Arabia, as the kingdom seeks to develop a market in corporate bonds.
The Saudi Capital Market Authority (CMA) required firms doing credit rating work to apply for licences last year, in order to set standards for the industry. The firms were allowed to continue operating pending decisions on their applications.
In a statement on Monday, the CMA said Standard & Poor's had been approved. It did not comment on five other applications submitted by, among others, Moody's Investor Services, Fitch Ratings and the local Saudi Credit Bureau.
Few Saudi firms issue bonds and most rely heavily on bank loans instead. Authorities want to encourage more bond issuance to reduce risk in the banking system, which has become more of an issue since low oil prices have cut flows of petrodollars into the economy, hurting banks' capacity to lend.
To persuade institutional investors such as pension funds to buy the bonds, authorities will need credit rating agencies to become more active.
Stuart Anderson, managing director for the Middle East at Standard & Poor's, said only about 15 percent of roughly 170 listed companies in Saudi Arabia had credit ratings, a rate that could rise sharply in coming years.
"Saudi Arabia is a G20 economy with a relatively undeveloped bond market. That means there will be a major business opportunity as the market gains momentum," he said. (Reporting by Andrew Torchia; editing by John Stonestreet)