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05 Apr 2017
NOTE: On September 27, 2019, the press release was corrected as follows: The Economic Data and Rating Committee Minutes disclosure paragraphs were added as the fourth and fifth paragraphs of the WHAT COULD MOVE THE RATING UP/DOWN section. Revised release follows.
Frankfurt am Main, April 05, 2017 -- Moody's Investors Service has today assigned a provisional programme
rating of (P)A1 to the global Trust Certificate Issuance Programme (the
Programme) established by the Government of Saudi Arabia (A1 stable).
KSA Sukuk Limited, a special purpose vehicle incorporated in the
Cayman Islands and wholly owned by the Government of Saudi Arabia,
will issue Trust Certificates under the Programme.
The payment obligations associated with these Trust Certificates are direct
obligations of the Government of Saudi Arabia, and the program rating
mirrors the Government of Saudi Arabia's long-term issuer
rating of A1.
Moody's expects to assign definitive rating(s) to Trust Certificates
issued under the Programme upon closing of the issuance and review of
the terms of the final transaction documents.
Moody's also notes that its programme rating does not express an
opinion on the structure's compliance with Shari'ah law.
RATINGS RATIONALE
The long-term (P)A1 rating assigned to the Programme is at the
same level as the long-term issuer rating of the Government of
Saudi Arabia because, in Moody's opinion, the Government
of Saudi Arabia's payment obligations associated with these Trust
Certificates are direct obligations of the Government of Saudi Arabia,
ranking pari passu with all other unsecured external indebtedness of the
Government of Saudi Arabia and the holders of the Trust Certificates will
therefore effectively be exposed to Saudi Arabia's senior unsecured
credit risk. Under no circumstances shall the certificate holders
have any right to cause the sale or other disposition of any of the Trust
Assets except pursuant to the Transaction Documents and the sole right
of the certificate holders against the Government of Saudi Arabia shall
be to enforce the obligation of the Government to perform its obligations
under the Transaction Documents.
Saudi Arabia's A1 stable long-term issuer rating reflects very
high levels of fiscal and economic strength, high institutional
strength, and a moderate susceptibility to event risks. Strong
growth in oil revenues until the oil price shock in 2014 allowed for the
build-up of a sizeable asset cushion and sharp debt reduction.
Although the decline in oil prices pushed the budget balance into deficit,
eroding the government's reserves and prompting it to issue bonds on the
international market for the first time in 2016, the fiscal position
remains strong. Despite rising funding requirements over the rating
horizon, Moody's thinks that the government has access to ample
sources of liquidity, both from domestic and international capital
markets and is unlikely to encounter problems financing fiscal deficits.
While foreign exchange reserves have fallen in light of a large current
account deficits since 2015, they remain sizable, at $514
billion (equivalent to around 80% of GDP) as of February 2017.
External debt is rising, but from a low base, and Moody's
expects annual external debt repayments to remain significantly below
the critical threshold of 100% of foreign exchange reserves over
the coming years.
Saudi Arabia's credit challenges include the economy's high dependence
on oil, as well as a rigid government spending structure and government
revenues that are vulnerable to oil price volatility. Saudi Arabia
has historically experienced strong growth rates, but real GDP growth
has decelerated since 2014, mainly due to fiscal consolidation in
response to lower oil prices. Low growth illustrates both the ongoing
economic pressures on economic strength from the oil price shock,
but also the fiscal challenges given the plan to get to a balanced budget
by 2020. The government has announced ambitious and comprehensive
plans to diversify the economy and government finances in its National
Vision 2030. However, implementation is still at an early
stage, and Moody's thinks there is a risk that the reform progress
might slow down in a scenario of higher oil prices and/or growing public
discontent. In Moody's view socio-economic challenges are
visible in strong population growth and high unemployment, and the
rating also incorporates an element of geopolitical risk, driven
by regional instability and the country's strategic rivalry with Iran.
WHAT COULD MOVE THE RATING UP/DOWN
Given that the programme rating is tied to the long-term issuer
rating of the Government of Saudi Arabia, the same factors and considerations
apply.
Fulsome implementation of planned fiscal and economic reforms would be
credit positive and could support a higher issuer rating. The success
of such reforms would likely be reflected in fiscal deficits falling more
quickly than currently envisaged, the government debt burden peaking
at a lower level and growth recovering earlier and more rapidly from a
broadening economic base. Such developments would be more positive
if they resulted from sustainable structural reforms, than from
cyclical or temporary increases in the price of oil. A reduction
in regional political and security threats would also exert upward pressure
on the rating.
The following developments would be credit-negative, and
could lead to a negative action on the issuer rating: loosening
fiscal consolidation, such as fiscal deficits staying wide and government
debt ratios rising faster than in Moody's baseline scenario;
renewed pressure on the exchange rate and a faster depletion of foreign
exchange reserves; difficulties to fund large fiscal and current
account deficits; an escalation of regional geopolitical risks and/or
signs of deteriorating domestic political and social stability.
GDP per capita (PPP basis, US$): 53,802 (2015 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4.1% (2015 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.3% (2015 Actual)
Gen. Gov. Financial Balance/GDP: -14.8% (2015 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -8.1% (2015 Actual) (also known as External Balance)
External debt/GDP: 15.1% (2015 Actual)
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been recorded since 1983.
On 29 March 2017, a rating committee was called to discuss the provisional rating to the Trust Certificate Issuance Programme issued by the Government of Saudi Arabia under Rule 144A in the US. The main points raised during the discussion were: The issuer's credit fundamentals and rating level, along with the terms and conditions of the instruments to be issued under the programme and the conclusion that these instruments would rank pari passu with other senior unsecured debt obligations of the Government of Saudi Arabia.
The principal methodology used in this rating was Sovereign Bond Ratings
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
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.
Steffen Dyck
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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