Dubai: Recent credit rating actions by credit rating agency Standard & Poor’s (S&P) and potential rating downgrades by other credit rating agencies are expected to hurt Qatar based corporates and banks in terms of financial performance and stock valuations according to analysts.
Following the recent severing of diplomatic ties with Qatar by a group of states led by Saudi Arabia, the UAE, Bahrain, Egypt, Libya, and Yemen; S&P was the first to lower its long-term rating on the State of Qatar to AA- from AA and placed the rating on credit watch with negative implications.
“We believe this will exacerbate Qatar’s external vulnerabilities and could put pressure on its economic growth and fiscal metrics,” said S&P’s credit analysts Benjamin Young.
This followed a number of rating related changes by S&P on Qatari banks and corporates ranging from downgrades to placing companies on watch list to changing outlooks from stable to negative.
Following the sovereign rating action, S&P also lowered our long-term rating on Qatar National Bank (QNB) to ‘A’ from ‘A+’ and placed the Commercial Bank, Doha Bank, and Qatar Islamic Bank on credit watch negative.
Mohammad Damak |
“We believe the recent developments might result in an outflow of external funding for Qatari banks over the next few months, depending on how the situation evolves,” said S&P Global Ratings credit analyst Mohammad Damak.
Extending its rating actions further to corporates and insurers S&P has placed ratings of Qatar-based telecommunications company Ooredoo and Doha Bank Assurance Co. on CreditWatch with negative implications.
“Ooredoo’s domestic operations, which account for 25 per cent to 30 per cent of group’s revenues and earnings, will likely suffer from the departure of residents of the countries severing ties with Qatar that were working in Qatar. The UAE, Saudi Arabia, and Bahrain have given their nationals 14 days to leave Qatar, which may result in lower roaming revenues,” S&P said in a statement.
More rating actions loom
Leading credit rating agencies such as Moody’s and Fitch have expressed concern over the fluid political situation the country is facing and analysts have warned rating action if the crisis persists and or escalates further.
Fitch has placed Qatar on negative credit watch. Citing the possibility of a “sustained” political crisis, the rating agency said it was placing Qatar’s investment grade AA status on credit watch. “While some discussions have taken place to resolve the crisis, it is becoming more likely that the crisis will be sustained and negatively affect Qatar’s economy and its credit metrics,” said Fitch.
The diplomatic tensions have led to a complete travel ban from the Gulf nations, threatening Qatar’s reliance on imports of food and goods. Although Qatar can cope with supply restrictions for some time, Fitch said it would put strain on the government’s resources.
Even before the crisis, Moody’s had downgraded Government of Qatar’s issuer ratings in late May this year to Aa3 from Aa2 and changed the outlook to stable from negative. The key drivers for the rating downgrade are a weakening of Qatar’s external position and uncertainty over the sustainability of the country’s growth model beyond the next few years.
The stable outlook reflected Moody’s view that implementation of fiscal and economic reforms, coupled with sizeable reserve buffers, will help shield Qatar’s credit profile from deteriorating further. But with the recent developments, Moody’s analysts have warned that the view could change.
While the banks’ current strong liquidity profiles should help them absorb a moderate drop in external funding over a longer period many banks could face funding challenges.
“If the situation is not resolved relatively quickly, it might exert further pressure on banks’ credit quality. To capture these risks, we placed our ratings on the four Qatari banks on credit watch with negative implications,” said Damak.