|08 October, 2019

Saudi Arabia, Aramco dollar bonds drop on Fitch downgrade

Fitch Ratings downgraded Saudi Aramco's Long-Term Issuer Default Rating (IDR) to 'A' from 'A+', with a stable outlook, after attacks on its production facilities in Abqaiq and Khurais last month

View of the production facility at Saudi Aramco's Shaybah oilfield in the Empty Quarter, Saudi Arabia May 22, 2018. Image used for illustrative purpose.

View of the production facility at Saudi Aramco's Shaybah oilfield in the Empty Quarter, Saudi Arabia May 22, 2018. Image used for illustrative purpose.

REUTERS/Ahmed Jadallah

Saudi Arabia’s sovereign dollar bonds and Saudi Aramco’s dollar bonds fell after Fitch downgraded overnight the oil giant company by one notch, data from Tradeweb showed on Tuesday.

The Kingdom’s 2047 issue XS1694218469=TE lost 0.7 cent to 113.34 cents in the dollar.For Aramco bonds, the 2049 issue XS1982116136=TE fell 0.4 cent to 109.51 cents in the dollar.

Fitch Ratings downgraded Saudi Aramco’s Long-Term Issuer Default Rating (IDR) to 'A' from 'A+’, with a stable outlook, after attacks on its production facilities in Abqaiq and Khurais last month.

Fitch said that Aramco’s downgrade follows the downgrade of Saudi Arabia to ‘A’ from ‘A+’ on September 30.

The drone attacks slashed Saudi Aramco’s crude oil supply by around 5.7 million barrels per day or about 50 percent of its output.

“We estimate the attack will have a very limited impact on Saudi Aramco's operational and financial performance in 2019 and we have not changed our assessment of Saudi Aramco's 'aa+' SCP,” the ratings agency said.

“However, we have downgraded Saudi Aramco's IDR to 'A' given the rating is capped by that of the sovereign to reflect interdependency between the two and the influence the state exerts on the company through strategic direction, dividends and taxation,” it added.

The Saudi Arabian oil giant company is preparing for the biggest IPO in history, with an initial plan to float 1 percent of the company in the local bourse Tadawul this year.

“The IPO itself is unlikely to have any major effect on Saudi Aramco's financial position. However, the company has already benefited from lower taxes, the domestic oil product price equalisation and other initiatives put forward by the government in anticipation of the IPO,” Fitch said.

Saudi Aramco has committed to increase its dividend payments to at least $75 billion per year in 2020 and beyond.

“Our financial modelling shows that the company should have capacity to maintain this level of dividends while being in line with our guidance for the 'aa+' SCP under our current price deck assumptions,” Fitch added.

(Writing by Gerard Aoun, editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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