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Rating Action:

Moody's assigns first time A1 rating to Saudi Arabia's Public Investment Fund; stable outlook

 The document has been translated in other languages

07 Feb 2022

DIFC - Dubai, February 07, 2022 -- Moody's Investors Service ("Moody's") has today assigned an A1 long term issuer rating (Global Scale Rating (GSR)) and an a1 Baseline Credit Assessment (BCA) to Public Investment Fund ("the Fund", PIF), Saudi Arabia's sovereign wealth fund which is wholly owned by Saudi Arabia. Moody's has also assigned an Aaa.sa long term issuer national scale rating (NSR) for PIF. The outlook on all ratings is stable. This is the first time Moody's has assigned a rating to PIF.

RATINGS RATIONALE

PIF's A1 issuer rating and stable outlook are aligned with those of the Government of Saudi Arabia (A1 stable). The rating reflects its standalone creditworthiness as expressed by a BCA of a1, combined with a 'very high' level of interdependence between the Kingdom and PIF and a 'very high' likelihood of extraordinary support being provided to PIF from the Kingdom if ever required.

PIF's a1 BCA reflects the Fund's very strong fundamental credit strengths which, when mapped to Moody's Investment Holding Companies and Conglomerates rating methodology, results in a scorecard-indicated outcome for PIF of Aa2 taking into account factors such as (1) large scale with total assets of SAR1.24 trillion ($330 billion) as of December 2020 based on standalone financials and SAR2.06 trillion ($549 billion) as of December 2020, based on consolidated financials, and underpinned by a steady dividend income stream and a high-quality investment portfolio; (2) sector diversification, with investments across several different sectors both locally and internationally; (3) very strong financial profile with very low leverage and very high interest coverage; and (4) an excellent liquidity profile. Moody's expects the Fund to maintain sizeable cash balances, in addition to an undrawn RCF to fund potential acquisitions and investments.

Both PIF's BCA and issuer rating are two notches below the scorecard indicated rating (Aa2) because they are constrained by Saudi Arabia's A1 sovereign rating, given the strong credit interlinkages between the Kingdom and PIF. PIF continues to receive contributions from the Kingdom, both monetary or via asset transfers and is one of the main vehicles of the Kingdom to execute on its Vision 2030. The entirety of PIF's board members is appointed by Royal order and the board is chaired by H.R.H. Mohammed bin Salman bin Abdulaziz Al Saud, Saudi Arabia's Crown Prince.

Over the past six years, PIF has evolved into becoming one of the Kingdom's main vehicles to grow the Kingdom's non-oil economy and reduce its reliance on the hydrocarbon sector. PIF's oversight changed in 2015 when it started reporting to the Council of Economic and Development Affairs (CEDA), chaired by the Crown Prince, from the Ministry of Finance (MOF). In 2016, the Kingdom of Saudi Arabia announced Vision 2030 and this was followed by PIF's Vision Realization Program (VRP) in 2018, setting the path to help realize Vision 2030. The VRP has four pillars: (1) grow the Fund's assets; (2) unlock new sectors in the Kingdom; (3) localize cutting edge technology and knowledge; and (4) build strategic partnerships domestically and internationally.

PIF's portfolio has grown substantially in the last six years since the change of oversight in 2015 with the Fund becoming an impactful and strategic investor. Moody's expects its size to grow further in the next few years, in line with the Fund's VRP and the Kingdom's Vision 2030. The Fund's assets under management have increased to SAR1,544 billion ($412 billion) in 2020 from SAR570 billion ($152 billion) in 2015. PIF's portfolio is diversified across a different set of investment pools including both domestic and international investment opportunities. Local investments are focused around maximizing the value of equity investments, investing in sector and real estate development as well as investments in giga-projects such as Neom. Those accounted for 67% of the Fund's assets under management as of December 2020 (excluding the treasury pool). On the international front, the Fund has a diversified portfolio of listed and unlisted investments as well as International Strategic Investments which accounted for 33% of assets under management as of December 2020 (excluding the treasury pool).

PIF has a very strong financial profile stemming from the fact that the Fund had a very small amount of debt at the Fund level as of December 2020. PIF had a net cash position while FFO interest coverage was above 10x due to the limited amount of interest expense and Moody's expects these metrics to remain commensurate with Aaa factor scores under the Investment Holding Company and Conglomerates rating methodology.

PIF's Aaa.sa NSR reflects the Fund's position as one of the strongest rated issuers in Saudi Arabia and one whose credit profile is very closely interlinked with the credit quality of the Government of Saudi Arabia. The Fund has a very strong financial profile with a significant scale and investments diversification across sectors. At the same time, credit linkages to the Government of Saudi Arabia are significant. PIF is expected to remain wholly owned by Saudi Arabia and to remain one of the Kingdom's main vehicles to execute on its Vision 2030.

ESG CONSIDERATIONS

PIF has indirect exposure to environmental and social risks through its investee companies. However, the Fund's portfolio is quite diversified and many of the sectors where PIF invests have low exposure to environmental and social risks. In addition, the Fund's portfolio largely consists of companies that have low exposure to environmental risk, except for utilities. PIF has little exposure to the energy and resources sector, which has a high or moderate exposure to environmental risk. PIF is a key driver of economic diversification in KSA and a key vehicle to achieve the Kingdom's Green Agenda including achieving Net Zero Carbon emissions by 2060 and achieving the country's Nationally Determined Contribution's (NDC) ambition of reducing annual greenhouse gas emissions by 278 million tons of CO2 equivalent by 2030. For example, PIF considers the renewable energy sector as one of its strategic sectors and is committed to develop 70% of Saudi Arabia's renewable energy target of 58.5GW by 2030.

Governance considerations for PIF include the Fund's financial policies to maintain very strong liquidity as well as leverage and interest coverage metrics, commensurate with Aaa factor scores under the Investment Holding Companies and Conglomerates rating methodology. The Fund has also adopted an extensive risk management framework that helps with the decision making when it comes to investment and divestment decisions. PIF is wholly owned by Saudi Arabia, given that it is the sovereign wealth fund of the Kingdom. The entirety of its board members is appointed by Royal order and the board is chaired by H.R.H. Mohammed bin Salman bin Abdulaziz Al Saud, Saudi Arabia's Crown Prince.

LIQUIDITY ANALYSIS

PIF has an excellent liquidity profile. The Fund had a net cash position as of September 2021. In addition to cash and cash equivalents of SAR168 billion ($45 billion), the Fund had access to a SAR56 billion ($15 billion) undrawn RCF. This, in addition to dividend and interest income are more than sufficient to cover the Fund's limited interest expense and operating expenses at the Fund level.

More than half of PIF's portfolio consists of listed investments that the Fund can sell should liquidity needs arise, providing an extra buffer to an already very strong liquidity profile. Moody's also expects the Fund to continue to receive asset transfers and cash contributions from the Kingdom in line with its vision to grow its assets under management in the coming decade. The rating agency also expects dividend distributions to remain very limited to none in the near future.

PIF's liquidity will also be bolstered by the committed payments from Saudi Arabian Oil Company ("Aramco") (A1, stable) to PIF for several years to come related to the sale of Saudi Basic Industries Corporation ("SABIC") (A1, stable) in June 2020 for a consideration of $69 billion.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook on PIF's rating is aligned with the stable outlook on the rating of the Government of Saudi Arabia given the strong credit links between the two.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating of PIF is at par with the rating of the Government of Saudi Arabia and hence — without a change in its mandate or ownership level — is likely to move with the rating of the government. An upgrade of the Government of Saudi Arabia's rating will likely therefore lead to an upgrade of PIF's rating.

PIF's Aaa.sa NSR is already at the highest rating level possible and hence cannot be higher.

PIF's rating could be downgraded if the sovereign rating is downgraded. A downgrade of PIF's rating in the absence of rating pressure on the sovereign is unlikely given our current view of the fundamental strength of the Fund.

A downgrade of PIF's GSR might potentially lead to a downgrade of its NSR unless the NSR mapping was simultaneously recalibrated, as would be likely if the Government's GSR was also downgraded. Even in such a scenario PIF would likely remain one of the very strongest domestic issuers so its Aaa.sa NSR might prove highly resilient to one or more GSR downgrades.

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1280297.

COMPANY PROFILE

PIF was established in 1971 by virtue of royal decree in the Kingdom of Saudi Arabia (KSA). The Fund is a strategic investor, developer, and asset management vehicle, wholly owned by Saudi Arabia with a focus on diversifying the Kingdom's economy and reducing its reliance on the hydrocarbon sector. In 2015, PIF's oversight was moved to the CEDA from the Ministry of Finance and is chaired by H.R.H. Mohammed bin Salman Al Saud, Saudi Arabia's Crown Prince.

PIF has investments both domestically and internationally across a wide range of sectors. The Fund had total assets of SAR 1.24 trillion ($330 billion) as of December 2020 based on standalone financials and SAR2.06 trillion ($549 billion) as of December 2020, based on consolidated financials.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Julien Haddad
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Middle East Limited
Regulated by the DFSA
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Middle East Limited
Regulated by the DFSA
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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