Global credit rating agency Moody's on Monday affirmed Industries Qatar's (IQ) 'A1' long-term issuer rating.
The rating agency also affirmed IQ's 'baa1' baseline credit assessment (BCA). The outlook remains "stable".
"Today's action reflects IQ's very strong financial and liquidity profile as a low cost producer, which benefits from long-term feedstock agreements with QatarEnergy, IQ's majority shareholder," said Julien Haddad, a vice president, senior analyst, and the lead analyst on IQ.
IQ's financial profile also incorporates a high degree of financial flexibility that can sustain a period of weaker operating conditions, he added.
The rating action reflects the strength of IQ's balance sheet, which the company has built over the years by maintaining a disciplined approach to capital spending.
IQ's leverage and interest coverage metrics remained “very strong” throughout the cycle, even at times when petrochemical and fertiliser prices were low, as was the case during the outbreak of the pandemic in 2020.
Prices and margins recovered in 2021 resulting in IQ strengthening further an already strong balance sheet. On a proportionately consolidated basis, IQ's Ebitda (earnings before interest, taxes, depreciation and amortisation) margin increased to 51% for fiscal year-end 2021 from 29.8% for fiscal year-end 2020, while debt to Ebitda decreased to 0.2 times from 0.5 times for the same period.
Moody's expects these metrics to normalise during 2022 to levels around 40% and 0.3 times respectively.
IQ group's 'A1' issuer rating combines a BCA of 'baa1' and a three-notch uplift, based on the assumption of high support from the government.
The BCA, which is a measure of stand-alone credit quality, is underpinned by IQ's strong competitive position as a low-cost producer; a very strong financial profile; and a high degree of integration and coordination between IQ and QatarEnergy, notably through board representation, shared management and QatarEnergy's control over key IQ group financial policies, as well as financial and investment decisions at the operating company level.
Long-term feedstock agreements with QatarEnergy, which give IQ a high degree of resilience to various down cycles in the sector in which it operates, substantially mitigate IQ's exposure to hydrocarbon price risk.
On ESG (environment, social and governance) considerations, Moody's said chemicals are among the 11 identified sectors with elevated credit exposure to environmental risk. For IQ, these risks are "mitigated by its good track record in environmental compliance and solid operational capabilities", it said.
In terms of governance, IQ has conservative financial policies, good governance practices, and a successful track record of maintaining a disciplined financial strategy and risk management, strong balance sheet and solid liquidity management.
This is balanced by the fact that QatarEnergy controls IQ's board given its majority ownership of the company and hence has the potential to significantly affect the company's credit profile.
IQ has a solid liquidity profile, with proportionately consolidated cash position of operating segments and the head office totalling QR15.4bn (of which majority is at the parent level) as on December 31, 2021 and IQ's share of operating cash flow in excess of QR7bn for the next 12 months.
Moody's expects these sources to cover annual group capital spending of around QR2bn to QR4bn in the next 12 months and dividends in line with the historical payout ratio for the same period. The group currently has some very limited lease liabilities and no outstanding loans.