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Moody's assigns Aa3 rating to Industries Qatar; outlook stable

DOHA: International credit rating agency 'Moody's Investors Service' yesterday assigned long-term local currency issuer ratings of Aa3 to Industries Qatar ( IQ ) QSC for the fist time. The outlook assigned to the rating is stable.

Franck Nowak, an Analyst in Moody's Corporate Finance Group and lead analyst for IQ , said: "The rating primarily reflects IQ 's financial and operational integration into the Aa2-rated Qatar Petroleum as a result of the holding's strategically important position as a Qatar Petroleum subsidiary."

"Through this position, IQ manages key shareholdings that are part of the critical domestic downstream activities within Qatar Petroleum 's broader diversification strategy," added Nowak.

The 'Aa3' rating combines IQ 's fundamental credit quality, as expressed in a baseline credit assessment ("BCA") of 8, which is equivalent to a 'Baa1' rating on Moody's global scale, and its high support from, and very high dependence on, the Qatari government under Moody's rating methodology for government-related issuers (GRIs).

Along with IQ 's various mandates and its high level of integration into Qatar Petroleum (" QP "), the BCA reflects the combination of the compelling industrial rationale and the strong competitive position that IQ 's subsidiary and joint ventures enjoy as world-class low-cost producers.

These factors, combined with long-term feedstock arrangements with QP , mitigate IQ 's exposure to hydrocarbon price risk.

In Moody's view, this implies that IQ has a high degree of resilience to various potential down cycles in the markets in which it operates. IQ has a proven successful operating history, spanning multiple years and cycles, which is balanced with certain event risk considerations including asset-concentration risk and geopolitical risk.

IQ 's petrochemicals and fertilisers ventures are characterised by above-industry-average profit margins, underpinned by feedstock cost advantages -- which are in turn secured by long-term sale and purchase agreements with QP , world-class integrated plants and strategic locations close to end markets.

However, taken individually, IQ 's operating entities are essentially single-site, commodity-type producers, which implies limited operational and geographical diversity. These factors are all likely to remain a constraint on the stand-alone profile expressed by reference to the BCA.

The high degree of integration and coordination of IQ 's operations with QP 's activities are evidenced through board representation -- notably the duplication of QP 's board to that of IQ , shared management and QP 's control over IQ group financial policies, as well as financial and investment decisions being made at the operating company level.

Moody's assessment of the level of support available to IQ as high reflects Moody's view that, despite the presence of partners at the subsidiary level, the shareholding structure of IQ is straightforward, with IQ controlling the boards across the various operating companies of the group, which allows for the provision of timely support, should it be needed. The government of Qatar has established a strong track record of supporting various institutions and corporates in the country, with IQ 's Qatar Steel being one recipient of such support in the form of a material (QR1.2bn ($0.3bn)) government grant, received in 2009.

© The Peninsula 2011