Moody’s issues (P)A1 rating for Saudi Arabia’s global sukuk

Moody’s Investors Service has assigned a provisional rating of (P)A1 to Saudi Arabia’s upcoming international dollar-denominated sukuk program, the ratings agency said in a statement on Wednesday.

The rating mirrors the kingdom’s A1 stable long-term issuer rating, as the sukuk program’s payment obligations are direct obligations of the Saudi government.

Saudi Arabia’s rating reflects “very high levels of fiscal and economic strength, high institutional strength, and a moderate susceptibility to event risks,” Moody’s said.

Despite rising funding requirements and lower revenues following the plunge in oil prices, the kingdom has access to ample sources of liquidity both from domestic and international capital markets.

Saudi Arabia is also unlikely to encounter problems financing fiscal deficits, the statement added.

The issuer rating could be revised upward on full implementation of planned fiscal and economic reforms, as well as a reduction in regional political and security threats.

Meanwhile, downside risks include loosening fiscal consolidation, renewed pressure on the exchange rate and a faster depletion of foreign exchange reserves, as well as increased geopolitical instability.

Saudi Arabia’s Debt Management Office at the Ministry of Finance on Tuesday said it has completed setting up the program for sukuk issuance.

The kingdom has also mandated investment banks to arrange its first international dollar-denominated sukuk, state-run news agency SPA reported.

The world’s biggest oil exporter is tapping international and domestic markets to help finance a budget deficit that may reach $53 billion this year, equal to about 7.7 percent of economic output.

The country plans to raise $10-15 billion from international bond markets in 2017 and sell about SAR 70 billion locally, a finance ministry official said in December.

KSA Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands and wholly owned by the Saudi government, will issue trust certificates under the program.