Saudi credit boost as oil prices rocket

by This email address is being protected from spam bots, you need Javascript enabled to view it on Wednesday, 09 July 2008

CREDIT BOOST: Fitch has upgraded Saudi's sovereign ratings on the back of record oil prices. (Getty Images)

Fitch Ratings on Wednesday upgraded Saudi Arabia's sovereign ratings on the back of record oil prices, but warned a sharp correction in the market could threaten its creditworthiness.

The ratings agency upgraded Saudi's long-term local and foreign currency issuer default ratings (IDRs) to 'AA-' from 'A+'. The outlooks have been revised to stable from positive, it said.

The country ceiling has also been upgraded to 'AA' from 'AA-' and the short-term IDR has been upgraded to 'F1+' from 'F1', Fitch said.

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"At today's oil prices, Saudi Arabia is earning around $1 billion a day from oil exports, reinforcing an already strong external balance sheet and creating a buffer against future shocks," Charles Seville, associate director in Fitch's sovereign team, said in a statement.

The agency said Saudi's main credit strengths were its very low indebtedness and large domestic and external assets.

General government debt, all of it domestic, fell to 7.2 percent of GDP at end-2007, while the wider public sector, represented mainly by profitable state-owned firms, has little external debt, it added.

Fitch said the kingdom's overwhelming dependence on oil - 90 percent of central government revenue comes directly from oil - left it exposed to a sharp drop in oil prices.

However, Fitch added that the government budgeted cautiously and could withstand oil prices as low as $30 a barrel for several years, without major spending adjustments, thanks in part to the Saudi's sizeable domestic and external assets, and capacity to borrow.

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