Fitch Downgrades Saudi Aramco to 'A' on Sovereign Downgrade, Assigns 'F1+' Short-Term IDR
07 OCT 2019 12:04 PM ET
Fitch Ratings - London - 07 October 2019:
Fitch Ratings has downgraded Saudi Arabian Oil Company's (Saudi Aramco) Long-Term Issuer Default Rating (IDR) to 'A' from 'A+' following the downgrade of Saudi Arabia (A/Stable). The Outlook is Stable. Fitch's assessment of Saudi Aramco's Standalone Credit Profile (SCP) is unchanged at 'aa+'. Fitch has also assigned Saudi Aramco a Short-Term IDR of 'F1+'.
The sovereign downgrade followed the drone and missile attack on Saudi Aramco's domestic infrastructure on 14 September 2019, which resulted in a short suspension of more than half of the company's oil production. The downgrade also took into account rising geopolitical tensions in the region, but also the country's continued fiscal deficit, among other factors. We estimate the attack will have a very limited impact on Saudi Aramco's operational and financial performance in 2019 and we have not changed our assessment of Saudi Aramco's 'aa+' SCP. However, we have downgraded Saudi Aramco's IDR to 'A' given the rating is capped by that of the sovereign to reflect interdependency between the two and the influence the state exerts on the company through strategic direction, dividends and taxation.
We assess Saudi Aramco's SCP at 'aa+', which sits at the upper boundary of Fitch's rating spectrum for oil and gas companies, and reflects the company's high production, vast reserves, low production costs, strong cash flows and very conservative financial profile. Saudi Aramco's upstream operations are focused on a single country and its production infrastructure is somewhat concentrated. However, this is mitigated by the company's available spare production capacity which can be utilised in case of production disruptions similar to recent events.
Saudi Aramco's 'F1+' short-term rating reflects the company's strong standalone liquidity position and financial flexibility and is in line with the sovereign short-term rating.