London, Riyadh- For three consecutive days, Moody’s negative outlook for the country’s credit rating has been chasing the Qatari economy. From lowering the outlook for the public economy to lowering bank ratings, until downgrading the ratings of a number of government institutions on Friday.
Moody’s rating agency has downgraded Qatar’s outlook from stable to negative while it affirmed the Aa3 rating, owing to concerns over disputes with neighboring countries.
The rating agency stated that the primary reason behind this change in outlook is the economic and political risks faced by the economy due to the blockade crisis. If not solved quickly, the crisis might negatively affect Qatar’s sovereign credit fundamentals.
While Qatar’s hydrocarbon exports are not affected at this stage, there have been reports of disruptions to certain non-hydrocarbon exports and a forced shutdown of helium production.
Moody’s said that a “prolonged period of uncertainty will negatively affect business and foreign investor sentiment and could also weigh on the government’s long-term diversification plans to position the country as a hub for air traffic, tourism, medical services, education, and sports through a higher risk perception among foreign investors.”
Weaker economic activity could also lead to deteriorating asset quality in the banking system and together with an escalation involving sanctions against the financial sector could necessitate a step-up in government liquidity support.
In addition to rising global interest rates, funding costs for the government and other Qatari-based issuers will increase further and the government’s balance sheet would deteriorate quicker in a scenario of a prolonged stalemate that extends well into 2018.
The rating agency affirmed the A1 guaranteed senior secured debt ratings of Ras Laffan Liquefied Natural Gas Co.Ltd (II) (RasGas II) and Ras Laffan Liquefied Natural Gas Co.Ltd (3) (RasGas 3), together RasGas II-3. Moody’s has also affirmed the A1 senior secured debt rating and the A2 senior subordinated debt rating of Nakilat Inc. (Nakilat). The outlook on these issuers has been changed to negative, from stable.
The rating actions on RasGas II, RasGas 3 and Nakilat follow Moody’s 4 July affirmation of the Aa3 government bond and issuer ratings of Qatar, and change in outlook to negative, from stable.
The negative outlook on Qatar was driven by the economic and financial risks arising from the ongoing dispute between Qatar and a group of countries, including its fellow GCC neighbors Bahrain (Ba2 negative), Saudi Arabia (A1 stable) and the United Arab Emirates (UAE, Aa2 stable).
The rating actions on RasGas II, RasGas 3 and Nakilat reflect that each is a government related issuer (GRI) and that the ratings benefit from Moody’s assumption of extraordinary support, if required, from the Government of Qatar to avoid a default on their debt obligations, which leads to a significant uplift from the standalone credit strength, or baseline credit assessment (BCA), of the projects.