Arab News, Tue, Feb 27, 2024 | Shaban 17, 1445
Moody’s affirms credit ratings of key Saudi companies
Saudi Arabia:
Several prominent Saudi companies received affirmation on their credit ratings
from Moody’s Investor Services, a leading global provider of financial
assessments, research, and risk analysis.
Following the agency’s recent update to its
Government-Related Issuers Methodology, several firms, including Saudi Basic
Industries Corp., Saudi Telecom Co., and Saudi Electricity Co., have maintained
their A1 ratings, while Saudi Arabian Mining Co., also known as Ma’aden,
continues to hold a Baa1 rating.
For SABIC, the A1 rating acknowledges its strong
global presence in the petrochemicals market, competitive cost structure, and
robust financial health.
Moody’s also highlights the cyclical nature of
SABIC’s operations and its concentration in Saudi Arabia as considerations.
stc’s A1 rating reflects its dominant position in
the Saudi telecommunications sector, strong financial metrics, and substantial
government support. Challenges include market competition and the capital
intensity of the telecom industry, Moody’s stated.
SEC’s rating considers its integrated electricity
operations, market dominance, and regulatory support balanced against the
company’s growing debt burden due to significant infrastructure investments.
Ma’aden’s Baa1 rating is supported by its
diversified production, low-cost operations, and strategic importance to Saudi
Arabia’s economy.
The company’s exposure to commodity price
volatility and its expansion plans are areas of focus.
The positive outlooks for SABIC, stc, and SEC
align with Moody’s view on the government of Saudi Arabia, indicating a high
likelihood of state support.
Furthermore, Ma’aden’s stable outlook reflects its
solid financial policies and liquidity management.
The ratings of the Saudi companies could
potentially be upgraded or downgraded based on several factors outlined by
Moody’s.
For SABIC, an upgrade could be on the horizon if
the ratings of the Saudi government or Saudi Aramco are elevated or if the
company itself demonstrates improved revenue and profitability and maintains
strong credit metrics and liquidity.
Conversely, SABIC’s ratings might face a downgrade
if the company experiences a significant downturn in operating performance or
engages in heavy debt-financed investments, pushing its deficit to earnings
before interest, taxes, depreciation, and amortization ratio toward a multiple
of 1.5.
Similarly, stc could see its scores positively
impacted if the ratings of the government or the Public Investment Fund are
upgraded, given its status as one of the highest-rated telecom operators
globally.
However, an escalation in competition,
debt-financed acquisitions, or sustained negative free cash flow could apply
downward pressure on stc’s ratings. Any decrease in the government’s or PIF’s
ratings would also likely result in a downgrade for stc.
SEC’s situation mirrors that of the aforementioned
entities, with the potential for an upgrade if the sovereign rating of Saudi
Arabia or the PIF improves, contingent upon the company maintaining strong
operational and financial performance.
A downgrade could occur if there is a notable
decline in the company’s liquidity profile or its financial metrics weaken
significantly.
Ma’aden’s ratings could be elevated if the company
successfully reduces its debt relative to EBITDA and boosts its retained cash
flow to net debt ratio while maintaining strong liquidity.
Conversely, an increase in debt and EBITDA ratio
beyond certain thresholds or a significant weakening of liquidity could trigger
a downgrade.
Adjustments in the perceived likelihood of support
from PIF or the government in times of financial stress could also influence
Ma’aden’s ratings.