Zulema Aragonés is the head of the DBRS Morningstar credit rating agency in Spain and has chaired the Canada-Spain Chamber of Commerce since last April. She welcomed Madrid Investment Attraction at Castellana, 81, the imposing bronze-colored tower that the company chose for its headquarters in our country in mid-2019.
In this interview, Mrs. Aragonés explains how these three years marked by the pandemic have been in the capital and why they made the decision to settle in Madrid. “Our project was long-term. We wanted to be closer to our clients and to retain the talent of the London office. When we opened the different offices in Europe, we realized that Madrid had a lot going for it to attract that talent”, she advances. In addition, she offers her views on relations with Canada and the possibilities of attracting more investment from that country.
M.I.A.: DBRS Morningstar settled in Spain three years ago now to serve southern Europe. How has the adaptation been in such a difficult time? How has the pandemic affected the plans you had?
Z.A.: In June 2019, Morningstar acquired the DBRS credit rating agency. We operate independently of the group because we are a regulated entity: as credit rating agency (CRA), we need to register with the European regulator ESMA (European Securities and Markets Authority). With the pandemic, time has flown and we have not been able to do all the promotion we wanted: exhibitions, events, these are things that have been left aside. We have focused more on providing the market with relevant and up-to-date information through webinars, research and thematic market studies as part of our dissemination strategy.
Our landing was very well accepted. When we opened the office we appeared in all the newspapers. There are very few credit rating agencies based in Spain: Moody’s, Finch, S&P, Axesor and us. And we are not large companies with large number of employees, but we are very important for the financial stability in Europe and globally. Our ratings guide investments decisions at all levels: sovereign, sub-sovereign (communities and municipalities), banks, companies and structured financial products (mortgages, leasing, credits…).
M.I.A.: From Madrid you serve the markets of Italy, Spain and Portugal. Why did you choose Madrid?
Z.A.: We went for Madrid as a bet on the future. It gave us access to a very important market for us, southern Europe, especially Spain, where we have always been leaders in several segments. It was also the best option for senior analysts from the London office who preferred to move to Spain. And that was our approach. At first, we never thought that Madrid was going to be a big hub. Simply, an office that gave that advantage to London employees and from where we could provide a better service to our clients in Southern Europe.
M.I.A.: M.I.A.: Did you consider any other city?
Z.A.: Yes. In December 2018 we opened the Frankfurt office and in January 2019 Madrid. Frankfurt was an easy choice because the our industry was relocating there, including our competitors, due to Brexit. We were looking at Amsterdam, Milan, Madrid… We drew up a business plan with costs, advantages, disadvantages, quality of life, health of the country’s financial system and tax system.
Madrid surprised us all. Everyone usually tends to think that Madrid is more cost-competitive than other European capitals, but it is not the case for us. The opening costs and the costs of running a physical office were higher than we originally planned. And finding an office in Madrid pre-COVID was very difficult. Now I suppose there are thousands of offices, but in 2019 it was not easy at all, especially in the area we wanted, close to our clients (in AZCA).
But it was a long-term project, in which we were going to recruit and retain senior staff. It was at this point that we saw that Madrid had a lot going for it. Before moving here in January 2019, I had never lived in Madrid nor had I worked in Spain. I am from Tarragona and I have lived twenty years in England. I know Barcelona well, but I barely knew Madrid. The truth is that this city surprised me a lot.
M.I.A.: Did you consider Barcelona?
Z.A.: Barcelona is an amazing city and one that I love very much, but many of our clients are located in Madrid. Madrid is one of the great financial centers in Europe. For us and our industry in general, it made no sense to go to a city other than Madrid.
M.I.A.: Was it easy to set up the HQ and the team? How many people currently work here?
Z.A.: We have seen very aggressive competition in the global market for this type of talent. In Spain we have been very successful in attracting and retaining this top talent, not only locally but also internationally. Of the 35 employees we have, 16 came from London. Of these, only six are Spanish. The rest are new people who have come from other countries, such as France and Italy, and also Spanish talent. It has been a very positive mix. One of the characteristics of the Madrid office is that the staff is very senior, we hardly have any junior employees. They have their portfolios and have been working many years in the industry. They have seen Madrid as an opportunity to settle down and enjoy life. How many have gone? Of the 16 who came, none. No one leaves this office.
The average employee here is someone who has worked in more than one country, who is rooted neither here nor in London nor in New York. We do not recruit in Madrid, we recruit globally. We compete with all international markets. The shortage of talent worldwide, the change in priorities after Covid where more flexibility and a better quality of life are sought, makes Madrid an attractive option. In Madrid all our employees can have the same professional career as they would in NY, London or Toronto, but enjoy the quality of life that Madrid offers.
M.I.A.: What tasks are carried out at this headquarters? Are global tasks carried out in coordination with larger offices?
Z. A.: We have European and global functions. We have global teams led by senior staff from Madrid, such as the internal controls, development of models and tools, review of methodologies, and also European leaders in the analytical teams in Corporates, Insurance, Infrastructure, Renewables, Structured Finance and Sovereigns. Many of our teams operate globally, although the analytical team is more focused on Europe.
There is always coordination with London, Frankfurt, New York, Chicago and Toronto. In this way, both the analytical teams and the global teams benefit from the experience of other jurisdictions.
M.I.A.: Do you work remotely?
Z. A.: We work in global teams. DBRS Morningstar employees in, for example, Canada, can work on ratings that are the responsibility of Madrid and vice versa, because there is no jurisdictional division. The only one there is, is that of the lead analysts in the European Union: the regulation requires that EU ratings are issued from CRAs registered in the EU, for this reason they cannot be issued from other offices outside the EU, as is that of the United Kingdom. The Madrid teams are global.
M.I.A.: In September you gave the Community of Madrid an A, stable rating. You indicate that the slowdown was less severe. What elements differentiate it from other territories of Spain?
Z. A.: On the 11th of March 2022, DBRS Morningstar confirmed the rating of the Community of Madrid at A (low) but changed the outlook from stable to positive.
The Positive trend on the Long-Term Rating reflects DBRS Morningstar’s view that (1) Madrid has delivered strong fiscal result in the last three years and is likely to continue doing so in the foreseeable future; (2) the region is strengthening its liquidity profile; and (3) downside risks related to the COVID-19 pandemic appear to be receding.
The economic outlook remains nevertheless clouded with uncertainties related to the healthcare situation and inflationary pressures, particularly energy prices. So far, Madrid’s finances have weathered well the shock of the COVID-19 pandemic, supported by the extraordinary financial transfers provided by the national government to all Spanish regions. Going forward, DBRS Morningstar’s analysis will focus on the speed of the economic recovery as well as the region’s effectiveness in controlling its expenditures as extraordinary national government support wanes.
M.I.A.: Is the risk rating for Spain stable and positive?
Z.A.: DBRS Morningstar rating on the Kingdom of Spain is “A” with a stable outlook and reflects our view that despite the marked deterioration caused by the pandemic and the risks still present, the worst of the pandemic appears to be behind us and the short term risks associated with the Russian invasion in the Ukraine are contained
In this sense, the Spanish economy is in a recovery process helped by the relaxation of restrictions, the current monetary and fiscal policies, and European funds. This economic recovery will facilitate an improvement in public accounts, although mostly cyclical.
The strength of the recovery and the effective implementation of the investments and reforms linked to the NextGen funds will be of vital importance to contain the risks associated with high public debt and the eventual withdrawal of both fiscal and monetary stimuli in a context of higher inflation.
M.I.A.: How do you see the prospects for Canadian investment in Spain?
Z.A.: There are different ways of approaching this topic. The first, our day-to-day experience in the Chamber. We have increased the number of members and attracted leading companies such as Northern Power, high technology companies such as Velto, Contextere, OpenTech, CAE and Vanas, who have chosen Madrid as a viable option to settle in Europe. That proves there is interest in investing here.
Then there’s the business barometer we did in January of Canadian companies. Many had expectations of continuing to invest and saw Spain as their main market. That is positive because there is stability and they are considering expanding their investment.
The ‘NextGen projects are based on sustainability, digitization, resilience, inclusion… these are projects in which Canadian companies have a lot to offer. From the chamber we try to give visibility to these projects and encourage the investment of Canadian companies in Spain. Traditionally, Spain is not the country in which Canada invests the most, at least if we compare it with the United Kingdom. But we do see growing interest.
M.I.A.: How could matters be improved in Spain?
Z. A.: Spain, in terms of infrastructure, is one of the leading countries in the world with high-speed lines, world class airports, motorways, and good connections with Europe, North Africa and Latin America. Universities have an excellent reputation worldwide. We are the fourth country in Europe with the most technology and science graduates, who are highly sought-after professionals. Take all that into account and the more than 300 hours of sunshine a year, and there should be thousands of investors queueing in. We have to do more and promote ourselves better.
With regard to the Canadian Chamber, I am aware of the great work that is being done together with the Canadian Embassy in Spain and the Commercial Offices of the Spanish Embassy in Ottawa and Toronto to promote Spain as a destination for investment. The relationship with Canada goes beyond import and export. Helping SMEs to invest in Spain requires a significant amount of effort. An SME wonders: how do I take my products to the Spanish market? That’s where all the economic agents and the Chamber come in.
M.I.A.: Of all the elements you have mentioned, would you highlight any in particular to attract investment?
Z.A.: Now the opportunity is the projects related to European funds. This opens up many opportunities for investment, whether state, private, domestic or global. Giving visibility to those projects helps. For example, when from the Chamber we reported on the Community of Madrid proposal to make an audiovisual hub, one of our members, Vanas (in Vancouver), was immediately interested. Traditionally, Canadian companies, when considering investing in Europe, have set their eyes on the United Kingdom. But after Brexit it may no longer always be an option. Madrid has to capitalize on that and cement itself as an investment destination in Europe.
M.I.A.: Do you think there are still investment opportunities for Canadian companies in Spain that have not materialized as a result of the signing of the CETA trade agreement?
Z.A.: Absolutely. At the event we organized with the CEOE at the Chamber of Commerce on Next Generation funds, the Canadian ambassador to Spain, Wendy Drukier, commented that CETA, the agreement between Canada and the EU, is working as planned and has helped soften the blow of the pandemic on the trade balance between Spain and Canada. But much remains to be done. ICEX studies show that the entry into force of CETA has not yet had a clear impact on the volume of trade. Trade flows between Spain and Canada are modest, although with an upward trend from 2014 to 2020, when exports were cut short by COVID.
Between January and October 2021, exports grew by 7.8% compared to the same period in 2020. Also noteworthy is the large increase in imports, of 59%, driven by fuels and minerals.
And then we have the large Spanish infrastructure companies that invest in Canada because they can participate in Canadian state infrastructure projects. That’s thanks to CETA. Another important fact to bear in mind: the Spain-Canada chamber of commerce did not exist. It has been established this year because there is a growing number of Spanish companies that have a presence there. This may not be yet reflected in the numbers, but we can see an upwards investment trend across both side of the Atlantic.
M.I.A.: And Madrid? What do Canadian companies think of it and how could it be better promoted?
Z. A.: Madrid is the capital of the fifth largest economy in Europe, it has more than three million people and world class infrastructures. I have lived in London many years and I think it is an incredible city, but the quality of life in Madrid is much much better. Madrid is a fabulous place to attract talent. My husband is Irish and when he first came he said: “Madrid is a lifestyle choice”. We have to promote it more, because it is truly a wonderful city to live in and develop all your professional aspirations.
