Leading financial evaluation corporation, Moody’s Investor Services, recently reaffirmed the credit standings of several noteworthy Saudi businesses. Following an update to their assessment methodology for entities related to government, a number of companies have succeeded in maintaining their commendable credit scores.
Among these, Saudi Basic Industries Corp., Saudi Telecom Co., and Saudi Electricity Co. have preserved their A1 ratings. Meanwhile, Saudi Arabian Mining Co., also known as Ma’aden, continues to boast a respectable Baa1 rating.
An A1 rating for SABIC signifies recognition of its formidable global position in the petrochemicals sector, its efficient cost management, and solid financial credentials. However, the cyclical nature of its business and regional concentration are factors that Moody’s considers.
For stc, the A1 rating reflects the company’s supremacy within the Saudi telecommunications industry, robust fiscal indicators, and substantial backing from the government. Nevertheless, the firm faces challenges such as intense sector competition and the capital-heavy nature of the telecom industry.
The evaluation for SEC takes into account its comprehensive electricity services, market command, and regulatory support while also considering its increasing debt load due to major investments in infrastructure.
Ma’aden’s rating gains support from its varied production base, cost-effective operations, and strategic significance to the national economy, though it remains exposed to the fluctuations of commodity prices and the ambitious nature of its expansion strategies.
The positive outlooks for SABIC, stc, and SEC are in sync with Moody’s optimistic view on the Saudi government’s support, suggesting a strong probability of assistance if needed. Ma’aden’s stable outlook is attributed to its prudent financial strategies and liquidity management.
Moody’s suggests that the ratings of these Saudi entities could see an adjustment based on various factors. For SABIC, a potential upgrade could be in sight should the ratings of either the Saudi government or Saudi Aramco improve, or if SABIC can increase its revenue and profitability while maintaining robust liquidity and credit metrics.
On the other hand, a significant downturn in SABIC’s performance or substantial debt-financed investments could lead to a downgrade if the debt to EBITDA ratio approaches 1.5 times.
stc might also benefit from an upgrade if the ratings of the Saudi government or Public Investment Fund are raised. However, increased competition, debt-led acquisitions, or prolonged negative cash flows could exert downward pressure on its ratings. A downgrade in the government’s or PIF’s ratings would likely have a similar effect on stc.
The potential for SEC to receive an upgraded rating is there if Saudi Arabia’s sovereign rating or the PIF’s rating sees an improvement, provided SEC continues to exhibit strong operational and financial discipline. On the flip side, a significant weakening of the company’s liquidity or financial metrics could result in a downgrade.
As for Ma’aden, a reduction in debt relative to EBITDA and an increase in retained cash flow to net debt ratio, coupled with robust liquidity, could lead to an improved rating. Conversely, a rise in the debt to EBITDA ratio or a considerable weakening in liquidity could initiate a downgrade. Changes in the perceived probability of support from the PIF or the government during financial difficulties could also influence Ma’aden’s credit rating.