Moody's sees 'limited' impact on QP from blockade
July 06 2017 08:56 PM
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Qatar Petroleum remains at the heart of Qatar's economy.

The economic blockade by the siege countries, notably Saudi Arabia and the UAE, is expected to have only "limited" impact on Qatar Petroleum (QP), whose exports are majorly to the Asian economies, according to Moody's, a global credit rating agency.
While the current dispute has resulted in some logistical "challenges" to the company, Moody's expects that the impact on QP's credit profile would remain “limited”.
"This is driven by the limited exposure QP has to other GCC (Gulf Cooperation Council) countries as the company exports the majority of its products to Asia," said Moody's, which affirmed 'Aa3 'long-term issuer rating of QP and 'A1' long-term issuer rating on Industries Qatar (IQ) as well as Qatar Electricity and Water Company (QEWC).
Reasoning for the affirmation of 'Aa3' rating on QP, Moody's said it primarily reflects the strong credit linkages between QP and the sovereign.
As Qatar's national oil and gas company, QP remains at the heart of Qatar's economy and social development and provides more than 75% of the government's revenues both directly (through taxes and royalties, mainly on exports) and indirectly (through dividends from QP), as well as contributing to a large portion of the country's gross domestic product (GDP), it said, adding "this is reflected in Moody's high extra-ordinary support and very high dependence assumptions."
Moody's also said IQ's GRI (government-related issuer) support uplift remains at three notches, while the company's 'baa1' baseline credit assessment (BCA), a measure of standalone credit profile, remains unchanged.
The affirmation of IQ's 'A1' issuer rating reflects the agency's view that the standalone credit fundamentals of IQ remain “strong” and that it "does not currently anticipate any meaningful deterioration" in the company's credit profile as a result of the ongoing diplomatic rift with the UAE, Saudi Arabia, Egypt and Bahrain.
Although about 14% of IQ's 2016 sales were to the Middle East and about 6% to Africa, it said within these regions, Moody's assumes that IQ has “moderate” sales exposure to UAE, Saudi Arabia and Egypt because these are large markets that have demand for commodities such as fertiliser and steel.
The closure of borders and ports access to these countries implies that IQ is unable to do business with customers based in these markets but Moody's view the financial impact to IQ is "immaterial" because the company is able to redirect its sales of commodity products to other markets.
On QEWC's ratings affirmation, Moody's factored in the strong credit linkages between QEWC and the sovereign, given that – together with its joint venture partners – the company owns, operates and manages the entirety of the country's power and water generating assets. "This translates into Moody's high extraordinary support and very high dependence assumptions," it added.
In addition to having a central position in the Qatari power sector, the 'baa1' BCA is underpinned by the long-term power and water purchase agreements with Kahramaa (100% government owned), the sole off-taker of QEWC's power and water; and matching fuel supply agreements with the QP.
These strengths largely offset the weakening, albeit strong, financial profile of the company due to an increase in debt to fund capex (capital expenditure) and overseas investments.
Reserve margins in both electricity (around 13% as of December 2016) and water (around 7% as of December 2016, which increased from 6% a year earlier following the commissioning of the RAF A3 desalination plant with a capacity of 36mn imperial gallons a day) have decreased in the last few years because of economic growth. "This has led QEWC to invest in capex and hence increase its gross debt and leverage," it added.

Last updated: July 06 2017 08:57 PM


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