Moody’s affirms Saudi Arabia’s A1 credit rating, ‘robust’ balance sheet

Moody’s indicated it would be possible over time to raise the Kingdom’s credit rating if structural reforms aimed at diversifying the economy continue. (Reuters)
Updated 02 May 2019
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Moody’s affirms Saudi Arabia’s A1 credit rating, ‘robust’ balance sheet

  • Credit view reflects ‘strong fiscal position’
  • Rating may rise if reforms aimed at diversifying economy continue

LONDON: Moody’s Investor Service has affirmed the government of Saudi Arabia’s A1 rating with a stable outlook, according to an annual credit analysis published today.

The ratings agency said its credit view of Saudi Arabia reflects the government’s “robust” balance sheet.

Saudi Arabia’s credit strengths include “substantial external liquidity buffers, a large stock of proved oil reserves with low extraction costs, and prudent financial system regulation,” Moody’s said.

“Although the decline in oil prices since 2014 has pushed the budget balance into deficit, eroded government reserves and prompted large issuance debt, the government's balance sheet remains robust,” it added.

Challenges include Saudi Arabia’s exposure to oil price volatility, and socio-economic challenges posed by strong population growth and unemployment, the ratings agency said. 

“The stable outlook reflects our view that risks to Saudi Arabia's credit profile are broadly balanced. Positive developments could stem from the implementation of wide-ranging reforms that enhance competitiveness and private-sector employment while moving the budget towards balance as the government projects to happen by 2023.”

It added that it would be possible over time to raise the Kingdom’s credit rating if structural reforms aimed at diversifying the economy continue.

“Increasing confidence that structural reforms aimed at reducing the reliance of Saudi Arabia’s economy and public finances on oil revenue are more effective than in our baseline scenario could, over time, support higher rating. The success of such reforms would likely be reflected in (1) fiscal deficits falling more quickly than currently envisaged and the government debt burden peaking at a lower level and earlier than expected, independent of fluctuations in oil prices; and (2) growth recovering more rapidly and from a more diversified economic base.”

Meanwhile, the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, said it plans to raise money through debt twice this year, including foreign currency borrowings.

“I think it’s going to be in the neighborhood of 14 billion Saudi riyals ($3.73 billion) and for the US dollar I think it’s going to be north of $8 or $10 billion,” PIF’s managing director, Yasir Al-Rumayyan, told CNBC.

Last year the fund raised an $11 billion international syndicated loan, its first commercial borrowing.


Chemicals sector feels the pressure of attacks on oil facilities

Updated 17 September 2019

Chemicals sector feels the pressure of attacks on oil facilities

  • Now petrochemicals industry which relies on crude oil and natural gas to make different kinds of plastic

LONDON: The global petrochemical supply chain is braced for the fallout from the weekend attacks on the world’s biggest crude oil processing plant in Saudi Arabia.

The attacks shut down about 5.7 million barrels per day (bpd) of oil production, sending the price of crude rocketing on Monday. Now the petrochemicals industry which relies on crude oil and natural gas to make different kinds of plastic, is also feeling the impact.

“With associated gas supplies badly disrupted due to the acute pause in oil production after the drone attacks, ethane supply is particularly under threat, which in turn means ethylene supplies would be interrupted too,” said Wood Mackenzie Head of Polyesters Salmon Lee.

Several major Saudi petrochemical producers, including SABIC, Tasnee, Yansab and Saudi Kayan have disclosed curtailed feedstock supplies in the wake of the attacks on the Abqaiq processing plant, which processes crude from the Ghawar, Shaybah and Khurais fields.

Saudi petrochemical plants tap natural gas, known as ethane, to make building block petrochemicals such as ethylene, from which many types of plastic are manufactured.

Spot prices of petrochemical including monoethylene glycol (MEG) and polyethylene (PE) have jumped in Asia.

Saudi Arabia accounts for about 10 percent of the global supply of polyethylene, which is used to make everything from plastic bags to milk cartons.

The Kingdom exported about 87 percent of its production to global markets in 2018.