Moody’s
has assigned a provisional (P)A1 senior unsecured medium-term note (MTN) global
scale rating (GSR) and Aaa.sa 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/Aaa.sa 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 Aaa.sa 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.