Moody's assigns new ratings to Saudi domestic sukuk issuance programme

Ratings agency says newest sukuk instrument is underpinned by the kingdom's robust, albeit deteriorating, balance sheet

Image used for illustrative purpose. American dollar and Saudi Riyal on the wooden.

Image used for illustrative purpose. American dollar and Saudi Riyal on the wooden.

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Moody’s has assigned a provisional (P)A1 senior unsecured medium-term note (MTN) global scale rating (GSR) and senior unsecured national scale rating (NSR) to the Government of Saudi Arabia's domestic SAR-denominated sukuk issuance program.

At the same time, Moody’s has concurrently assigned an A1/ senior unsecured GSR/NSR to the most recent sukuk instrument issued under the programme.

The government of Saudi Arabia's A1 GSR is underpinned by the government's robust, albeit deteriorating, balance sheet and supported by substantial external liquidity buffers, it said in a press release.

The release added that the instruments issued by the government under the programme warrant the strongest rating by virtue of the sovereign's large footprint in the economy and its capacity to control and/or influence economic, political, and social matters; and, its large financial buffers, including foreign reserves in the central bank and a robust, albeit deteriorating, balance sheet

Among environmental, social and governance considerations cited by Moody’s included falling hydrocarbon demand, which it said would cause Saudi Arabia’s credit profile to face downward pressure, over the longer term, but with sizeable credit buffers to support it.

The ratings agency also cited concerns around water sustainability, due to the country’s status as one of the most arid states in the world with a rapidly growing population, as well as the labour market.

“Moody's expects that labour market nationalisation policies and economic diversification efforts will over time help to reduce the unemployment rate for the nationals (12 percent in the fourth quarter of 2019).

“However, these policies may fall short should labour force growth outpace increased availability of jobs in the private sector. In addition, Moody's regards the coronavirus outbreak as a social risk under Moody’s ESG framework, given the substantial implications for public health and safety,” the release said.

It also said governance risks have an ‘on balance positive impact on Saudi Arabia’s credit profile’, which it said were ‘balancing ongoing improvements in government effectiveness, control of corruption and regulation against weaknesses related to civil society and judiciary’.

“While Moody's acknowledges progress in the past two years on improving economic and financial data transparency and availability, the remaining challenges primarily relate to poor disclosure on the financial performance and debt levels of government-related entities,” the release concluded.

(Writing by Imogen Lillywhite; editing by Seban Scaria)

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