London, 10 November 2021 -- Moody's Investors Service ("Moody's") has today
affirmed the ratings of the following four entities domiciled in Saudi
Arabia and changed their outlook to stable from negative.
• Saudi Arabian Oil Company (Saudi Aramco)
• Saudi Basic Industries Corporation (SABIC)
• Saudi Telecom Company (STC)
• Saudi Electricity Company (SEC)
The rating actions follow Moody's decision on 5 November 2021 to affirm
the A1 rating of the Government of Saudi Arabia and change the outlook
to stable from negative. For further information on the sovereign
rating action, please refer to the press release: https://www.moodys.com/research/--PR_456348.
Full details of the rating actions for the affected entities can be found
at the end of this press release.
RATINGS RATIONALE
Today's rating actions are a direct consequence of the sovereign rating
action and reflect the credit linkages between the Government of Saudi
Arabia and each of the four entities. While these corporates benefit
to varying degrees from international assets and cash flows, they
all have significant credit linkages to the Saudi Arabia sovereign and
are exposed to the domestic environment including political, economic,
regulatory and social factors.
-- SAUDI ARAMCO
Saudi Aramco is the world's largest oil supplier and has exclusive access
to nearly all of Saudi Arabia's vast hydrocarbon resources. Significant
credit linkages with the Saudi Arabia sovereign constrain Saudi Aramco's
rating and therefore today's action to affirm the A1 issuer rating and
change the outlook to stable from negative mirrors the action taken on
the sovereign rating. The company's A1 rating reflects its
very large operational scale, significant downstream integration
and strong financial flexibility given its low cost structure and low
leverage relative to cash flows. These characteristics provide
resilience through oil price cycles and also help mitigate carbon transition
risk, which is a material credit consideration for oil and gas companies.
Saudi Aramco's rating incorporates a baseline credit assessment
(BCA) - a measure of standalone credit quality - of a1 which
is in itself constrained by the sovereign rating. Government-Related
Issuer (GRI) assumptions include (1) 'very high' interdependence between
the government and Saudi Aramco; and (2) 'very high' likelihood of
extraordinary support being provided to the company from the government
if ever required.
-- SABIC
SABIC is one of the world's largest petrochemical producers and benefits
from a competitive cost position and significant economies of scale.
The affirmation of the A1 issuer rating and change of outlook to stable
from negative mirrors the action taken on the sovereign rating.
The majority of SABIC's assets are located in Saudi Arabia and these production
facilities benefit from having access to competitively priced domestic
feedstock.
SABIC had a very strong operating performance in the first nine months
of 2021, benefitting from the increase in demand and petrochemical
prices since Q4 2020. The rating agency expects SABIC's Moody's
adjusted EBITDA margins to normalize around 25% in 2022 from levels
of around 27% for the first nine months of 2021. This is
much higher than the margins the company generated in 2020, of 18.5%.
This has resulted in high free cash flow (FCF) generation and in a decrease
in Moody's adjusted net debt to EBITDA to 0.4x from 1.2x
as of December 2020.
-- STC
STC is the leading integrated telecommunications and information and communications
technology (ICT) operator in Saudi Arabia, with some international
operations across the Middle East, Africa and Southeast Asia.
The affirmation of the A1 issuer rating and the change of outlook to stable
from negative is in line with that of the government and reflects the
credit linkages between STC and the government and the fact that STC generates
more than 90% of its cash flow in Saudi Arabia. STC's long-term
issuer rating of A1, which is aligned with the sovereign rating
of the Government of Saudi Arabia, reflects its standalone creditworthiness
as expressed by a BCA of a1, combined with a 'high' level of dependence
and a 'strong' level of support from the government.
The BCA factors in STC's (1) solid financial profile, as illustrated
by its consistently low debt/ EBITDA of below 1.0x; (2) leading
position in the domestic market, where it holds a market share of
around 70%; (3) strong EBITDA margin in the 40%-45%
range on a consistent basis; and (4) strong liquidity despite high
dividend payments.
The BCA also takes into account (1) the concentration to and increasing
competitive nature of the telecom market in the Kingdom of Saudi Arabia
(KSA); (2) the saturation in the KSA's mobile segment; and (3)
the low aggregate revenue contribution of around 8% from international
operations in 2020.
-- SEC
SEC is Saudi Arabia's electricity utility company. The affirmation
of the A1 issuer rating and change of outlook to stable from negative
mirrors the action taken on the sovereign rating and reflects the significant
credit linkages between the company and the sovereign. All of SEC's
assets are located in Saudi Arabia and the company benefits from supportive
government policies. SEC's long-term issuer rating of A1
reflects its standalone creditworthiness as expressed by a BCA of baa1,
combined with a 'very high' level of dependence and 'very high' level
of support from the government.
SEC's BCA is supported by the low business risk profile of its integrated
electricity activities and its dominant market position in Saudi Arabia
and continued ongoing support from the government including fuel and other
forms of subsidies. Since 1 January 2021, SEC operates under
a new regulated asset base framework that is transparent and supportive.
SEC's BCA also reflects a growing debt load as substantial investments
are incurred to meet the growing demand for electricity in Saudi Arabia.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
-- SAUDI ARAMCO
Saudi Aramco's long term issuer rating is constrained by the rating
of the government of Saudi Arabia given the broad credit linkages between
the two. Excluding credit linkage considerations with the sovereign,
Moody's views the company's fundamental profile as significantly
stronger than an A1 rating and therefore an upgrade of the sovereign rating
would likely lead to an upgrade of Saudi Aramco's rating if it maintains
its prudent financial policies.
Negative pressure on the sovereign rating will lead to negative pressure
on Saudi Aramco's long term issuer rating. A downgrade of
Saudi Aramco's rating in the absence of rating pressure on the sovereign
is highly unlikely given Moody's current view of the fundamental
strength of the company.
-- SABIC
SABIC's rating is constrained by the sovereign rating given the
broad credit linkages between the two. A rating upgrade on the
Government of Saudi Arabia could lead to an upgrade of SABIC's rating.
The rating could be downgraded if SABIC's credit profile weakens as a
result of a sustained markedly weaker operating performance and significantly
higher investment spending (such as through large debt-funded acquisitions),
leading to a more leveraged capital structure, with Net Debt to
EBITDA trending towards 1.5x. A rating downgrade on the
Government of Saudi Arabia will lead to a downgrade of SABIC's rating.
-- STC
STC's rating could come under positive pressure if the sovereign
rating of Saudi Arabia is upgraded. Following the upgrade of STC's
BCA to a1, the company is now one of the highest rated telecom operators
on a stand-alone basis globally. The likelihood of the BCA
being upgraded to aa3 is low, due to the company's scale and
concentration in Saudi Arabia. Any increase in scale outside of
Saudi Arabia, in markets with lower sovereign ratings or where the
regulatory framework is less supportive compared to Saudi Arabia,
could result in the company diluting the benefit of its strong and leading
position in its domestic market.
STC's issuer rating would be downgraded if the Government of Saudi
Arabia's rating were to be downgraded. Downward pressure
on STC's BCA could result from increased competition, debt-financed
acquisitions or sustained periods of negative free cash flow — as
a result, for instance, of higher capital spending or dividend
payouts — that cause the company's debt/EBITDA to materially
exceed 1.0x on a sustained basis and its retained cash flow/debt
to decrease below 45% on a sustained basis.
-- SEC
SEC's ratings could be upgraded if Saudi Arabia's sovereign rating was
upgraded. This would also require no material deterioration in
the company's operating and financial performance and a good track record
under the new regulatory regime.
SEC's ratings could be downgraded as a result of (1) a downgrade
of Saudi Arabia's sovereign rating, (2) a change in Moody's government
support assumptions. SEC's BCA could be downgraded in case of a
weakening of SEC's credit metrics such that (CFO pre-WC +
interest)/interest is sustained below 3.0x or (CFO pre-WC
- dividends)/debt, excluding the shareholder instrument from
debt, is sustained below 15%.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Saudi Arabian Oil Company
....LT Issuer Rating, Affirmed A1
....NSR LT Issuer Rating, Affirmed Aaa.sa
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1
....Baseline Credit Assessment, Affirmed
a1
..Issuer: SA Global Sukuk Limited
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)A1
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Electricity Company
....LT Issuer Rating, Affirmed A1
....Baseline Credit Assessment, Affirmed
baa1
..Issuer: Saudi Electricity Global SUKUK Company
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Electricity Global SUKUK Company 2
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Electricity Global SUKUK Company 3
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Electricity Global SUKUK Company 4
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Electricity Global SUKUK Company 5
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: SABIC Capital I B.V.
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: SABIC Capital II B.V.
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Saudi Basic Industries Corporation
....LT Issuer Rating, Affirmed A1
..Issuer: Saudi Telecom Company
....LT Issuer Rating, Affirmed A1
....Baseline Credit Assessment, Affirmed
a1
..Issuer: STC Sukuk Company Limited
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)A1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1
Outlook Actions:
..Issuer: Saudi Arabian Oil Company
....Outlook, Changed To Stable From
Negative
..Issuer: SA Global Sukuk Limited
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Company
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Global SUKUK Company
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Global SUKUK Company 2
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Global SUKUK Company 3
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Global SUKUK Company 4
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Electricity Global SUKUK Company 5
....Outlook, Changed To Stable From
Negative
..Issuer: SABIC Capital I B.V.
....Outlook, Changed To Stable From
Negative
..Issuer: SABIC Capital II B.V.
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Basic Industries Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Saudi Telecom Company
....Outlook, Changed To Stable From
Negative
..Issuer: STC Sukuk Company Limited
....Outlook, Changed To Stable From
Negative
PRINCIPAL METHODOLOGIES
The principal methodologies used in rating Saudi Arabian Oil Company and
SA Global Sukuk Limited were Integrated Oil and Gas Methodology published
in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodologies used in rating Saudi Telecom Company and STC
Sukuk Company Limited were Telecommunications Service Providers published
in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodologies used in rating Saudi Electricity Company,
Saudi Electricity Global SUKUK Company, Saudi Electricity Global
SUKUK Company 2, Saudi Electricity Global SUKUK Company 3,
Saudi Electricity Global SUKUK Company 4 and Saudi Electricity Global
SUKUK Company 5 were Regulated Electric and Gas Utilities published in
June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodologies used in rating Saudi Basic Industries Corporation,
SABIC Capital I B.V. and SABIC Capital II B.V.
were Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
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.
The local market analyst for Saudi Arabian Oil Company and SA Global Sukuk
Limited ratings is Rehan Akbar, +971 (423) 795-65.
The local market analyst for Saudi Basic Industries Corporation,
SABIC Capital I B.V., SABIC Capital II B.V.,
Saudi Telecom Company and STC Sukuk Company Limited ratings is Julien
Haddad, +971 (423) 795-39.
The local market analyst for Saudi Electricity Company, Saudi Electricity
Global SUKUK Company, Saudi Electricity Global SUKUK Company 2,
Saudi Electricity Global SUKUK Company 3, Saudi Electricity Global
SUKUK Company 4 and Saudi Electricity Global SUKUK Company 5 ratings is
Thomas Le Guay, +971 (423) 795-45.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Saudi Arabian Oil Company, SA Global Sukuk
Limited, Saudi Basic Industries Corporation, SABIC Capital
I B.V. and SABIC Capital II B.V. credit ratings
is David Staples, MD-Corporate Finance, Corporate Finance
Group, Journalists Tel 44 20 7772 5456, Client Service Tel
44 20 7772 5454. The person who approved Saudi Electricity Company,
Saudi Electricity Global SUKUK Company, Saudi Electricity Global
SUKUK Company 2, Saudi Electricity Global SUKUK Company 3,
Saudi Electricity Global SUKUK Company 4, Saudi Electricity Global
SUKUK Company 5, Saudi Telecom Company and STC Sukuk Company Limited
credit ratings is Rehan Akbar, Senior Vice President, Corporate
Finance Group, Journalists Tel 44 20 7772 5456, Client Service
Tel 44 20 7772 5454.
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.
Sven Reinke
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
