Dubai: Successive rating actions from global rating agencies on Qatar following the imposition of diplomatic and economic sanctions by a coalition of Arab states have impacted investor confidence in Qatari asset classes.
Credit rating agency Standard & Poor’s (S&P) was the first to take rating action on Qatar within days after the diplomatic row erupted. The rating agency has lowered 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. The negative credit watch encompasses numerous downside risks to the ratings as a consequence of recent events. At this stage, we note that there are numerous uncertainties regarding Qatar’s response, the extent to which these measures will be imposed, and their longevity,” said S&P’s credit analyst Benjamin Young.
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.
Moody’s Investors Service last week changed the outlook on Qatar’s rating to negative from stable and affirmed the long-term issuer and senior unsecured debt ratings at Aa3.
The key driver for the outlook change to negative is the economic and financial risks arising from the ongoing dispute between Qatar and a group of countries, including its fellow Gulf Cooperation Council (GCC) neighbours Bahrain, Saudi Arabia and the UAE.
The coalition countries have enacted a series of measures such as severing diplomatic relations, closing land, sea and air links, and expelling Qatari nationals from their countries. In addition, they have submitted a list of 13 demands as condition for removing these actions which was rejected by Qatar.
Moody’s has kept Qatar’s sovereign rating at Aa3. However, the rating agency said that depending on the duration and potential further escalation of tensions, the dispute could negatively affect Qatar’s economic and fiscal strength.
Following its decision to place sovereign rating outlook for Qatar negative, the rating agency has also placed 10 Qatari banks and leading government owned entities (GREs) such Qatar’s national oil and gas company Qatar Petroleum (QP), Industries Qatar and Qatar Electricity and Water Company negative.
Going by the same logic on the sovereign credit outlook, Moody’s also changed the outlook of project finance companies such as Ras Laffan Liquefied Natural Gas Co. Ltd (II) (RasGas II) and Ras Laffan Liquefied Natural Gas Co. Ltd (3) (RasGas 3), and Nakilat Inc. from stable to negative.
However, the rating agency maintained the rating outlook of telecommunication firm Ooredoo. “The affirmation of the A2 ratings with a stable outlook reflects Ooredoo’s robust standalone credit profile with around 70 per cent of EBITDA generated outside of Qatar in 2016, as well as the company’s cash balances which are sufficient to meet debt obligations at the parent and group level for two years”, said Douglas Rowlings, a vice-president-senior analyst at Moody’s.
In Moody’s view, the likelihood of a prolonged period of uncertainty extending into 2018 has increased, which carries the risk that Qatar’s credit fundamentals could be negatively affected.
Moody’s thinks 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.
The ongoing dispute involving Qatar and a coalition of countries including three of its fellow GCC neighbours Saudi Arabia, UAE and Bahrain as well as some other mostly Arab nations including Egypt, is unlikely to be resolved soon in Moody’s
“Absent a swift resolution, economic activity will likely be hampered by the measures imposed so far. 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. The termination of direct flights between Qatar and coalition countries will affect services trade in areas like consulting and tourism. This will likely also affect the profitability of corporates, including government-owned or government-related entities such as Qatar Airways,” Steffen Dyck, senior credit officer, Sovereign Risk Group of Moody’s.