Ratings on GCC states under pressure as oil price stays low

Ratings on GCC states under pressure as oil price stays low

Rating agencies have been reviewing and in several cases downgrading the ratings of GCC states as a result of the sustained fall in oil prices.

Bahrain has lost its investment grade rating from Moody’s and from S&P while Fitch has its BBB- rating on Bahrain on a negative outlook. (BBB is the lowest investment grade rating.) Oman has been downgraded three notches by S&P and now sits at BBB-, albeit with a stable outlook. Moody’s has Oman at A3 after a two notch downgrade, with the new rating on watch for further downgrades.

Kuwait, Qatar and the emirate of Abu Dhabi have shown the most resilient ratings. All continue to be rated AA/Aa2 – none has been downgraded. Moody’s has all the ratings on review for downgrade, but Fitch and S&P have stable outlooks. Moody’s is the only one of the three with a rating on the United Arab Emirates: Aa2 on review for downgrade.

Opinions on Saudi Arabia differ. Fitch affirmed the Kingdom’s AA rating in August 2015, with a stable outlook. Moody’s rating is one notch lower, at Aa3, and this was put on review for downgrade in March. S&P has downgraded the Kingdom twice in the last few months: from AA- to A+ in October 2015, and then by another two notches to A- in February 2016. S&P’s rating has a stable outlook.

Moody’s downgrade of Bahrain and Oman, and its reviews for downgrade of the other GCC states, taken in March, were part of a larger consideration of ratings on oil exporting countries. At the same time, Moody’s also downgraded Azerbaijan, (by one notch to Ba1, with a review for further downgrade), and put the ratings of Angola, Gabon, Kazakhstan, Nigeria and Russia on review for downgrade.

Ratings on Sharjah (A from S&P and A3 from Moody’s) are stable, as are those on Ras Al-Kheimah (A from Fitch and S&P, and Baa1 from Moody’s).

None of the agencies rate the emirate of Dubai, but S&P and Moody’s have a rating of Baa2 on the Dubai Electricity and Water Authority. Moody’s rates Emirates NBD, which is also owned by the emirate of Dubai, at Baa1, while Fitch has the bank three notches higher at A+

When a rating agency announces a ‘review for downgrade’ it is saying that it will soon hold a formal review to decide whether to downgrade the issuer. In contrast, a ‘negative outlook’ is a signal about likely future rating direction, but without any intention of holding a formal review. A ‘stable outlook’ indicates that the agency is not expecting to change the rating in the medium term.

The tables attached below show ratings on GCC sovereigns, as of 18 March, with detail on recent rating actions and current outlooks; and a comparison of Moody’s and Fitch/S&P rating scales.

GCC Sovereign Ratings
Rating notation, comparison Sheet1