LONDON, 28 February 2008 — Moody’s Investors Service has affirmed all ratings of Saad Trading Contracting & Financial Services Company (STCFSC), the Saudi Arabia-based subsidiary of the Saad Group. Ratings affirmed include the entity’s Baa1 senior unsecured issuer rating and the Baa1 rating on $650 million of Sukuk Al-Manafa’a issued through Golden Belt 1 Sukuk Company B.S.C. (Golden Belt). The outlook on all ratings is stable.
“Despite a challenging market environment, STCFSC has made a number of efforts that have strengthened its credit profile, including diversifying its securities portfolio, extending its debt maturity profile and providing strong liquidity”, says Philipp Lotter, a Senior Credit Officer at Moody’s Middle East Limited in Dubai (DIFC) and lead analyst for Saad. “Ratings currently remain constrained by the volatility of global equity markets, to which STCFSC is exposed, and some event risk surrounding the long term allocation of its substantial cash balance”, Lotter adds.
STCFSC’s ratings are affirmed based on a combination of factors, including the asset coverage that can be derived from its growing portfolio of securities and investment properties, as well as the additional operating cash flows the Saad Group generates from its real estate, construction and related services businesses. Over the past 12 months, STCFSC has significantly increased its investment portfolio, mainly via the acquisition of international banking shares and Saudi real estate.
Whilst these investments have resulted in an increase in debt, the company has at the same time benefited from sizeable injections of capital from its owner, Maan Al-Sanea. At year-end 2007, STCFSC’s cash balance exceeded its debt, thus providing ample liquidity in addition to available committed bank lines. Whilst this cash will ultimately be re-invested into new asset classes, it is currently being held to provide a cushion against volatile equity markets, to which STCFSC is exposed. Moody’s takes significant comfort from this prudent financial policy but the final decision regarding the allocation of the cash represents a degree of event risk, which the rating agency will be monitoring going forward.
Moody’s factors into its rating of STCFSC uplift for shareholder support. Ratings could be upgraded if STCFSC continues to improve financial metrics, and in particular asset coverage, which may involve some of its available cash being used for debt reductions, and continued consistency of its sound investment strategy.
