Moody's assigns A2 rating to SEC’S green sukuk issuance, negative outlook

Moody's Investors Service assigned on Sept. 10 an A2 rating to the proposed senior unsecured green sukuk certificates to be issued by Saudi Electricity Global SUKUK Company 5 (the Issuer), a special purpose vehicle established in the Cayman Islands (Aa3 stable) by Saudi Electricity Co. (SEC, A2 negative). The outlook is negative.

The A2 rating and negative outlook assigned to the certificates are at the same level as the long-term issuer rating of SEC. According to Moody’s, the certificate holders will be effectively exposed to SEC's senior unsecured credit risk; but will not be exposed to the risks relating to the trust assets. They will not have any preferential claim or recourse over the trust assets, or rights to cause any sale or disposition of the trust assets except as expressly provided under the transaction documents and will only have rights against SEC, ranking pari passu with other senior unsecured obligations as provided in the transaction documents. As such, a change in SEC's ratings will automatically be reflected in the rating of the Issuer and of the issued Certificates.

“We view SEC as a government-related issuer (GRI) that benefits from credit linkages with the government of Saudi Arabia. The long-term issuer rating of A2 reflects the creditworthiness of SEC as expressed by a baseline credit assessment (BCA) of baa1, combined with a 'very high' level of dependence and 'high' level of support from the government. The negative outlook is in line with the Government of Saudi Arabia and reflects the significant credit linkages between the company and the sovereign,” Moody’s explained.

A rating upgrade is currently unlikely given the negative outlook. SEC's substantial debt load and absence of an explicit government guarantee currently prevents SEC's ratings from being aligned with that of the sovereign.

The rating could be cut due to a downgrade of Saudi Arabia's government bond rating, a change in Moody's government support and dependence assumptions, or a weakening of SEC's credit metrics. Any material changes to the regulatory regime that would result in greater business risks could also lead to a downgrade if not offset by changes in SEC's capital structure.