Moody’s assigns A1 rating to Saudi Arabia’s global notes

Moody’s Investors Service has assigned an A1 senior unsecured debt rating to Saudi Arabia’s global notes issued under its medium-term notes (MTN) program, it said in a statement on Saturday.

The world’s top oil exporter last week raised SAR 46.9 billion ($12.5 billion) from its second dollar bond sale this year, as the Kingdom seeks to plug up its budget deficit.

The issuance received significant interest from international and local investors, with the order book peaking at $40 billion (equivalent to SAR 150 billion), the finance ministry said in a statement.

Moody’s noted that the debt rating mirrors the Saudi government’s A1 long-term issuer rating, which reflects high levels of fiscal, economic strength, and institutional strength, as well as a moderate susceptibility to event risks.

Despite rising funding requirements over the rating horizon, the Kingdom has access to ample sources of liquidity, both from domestic and international capital markets, and is unlikely to encounter problems financing fiscal deficits.

However, the country continues to face credit challenges such as a high dependence on oil, as well as a rigid government spending structure and state revenues that are vulnerable to oil price volatility, Moody’s said.

While the government has announced ambitious and comprehensive plans to diversify the economy, significant implementation challenges remain. There is also a risk that the reform progress might slow down in a scenario of higher oil prices and/or growing public discontent, the report noted.

Saudi Arabia raised $17.5 billion in its debut sovereign bond issue last year, said to be the largest by an emerging economy. The issuance was part of broader efforts by the country to reduce oil reliance and increase foreign investment.

Earlier in 2017, the Kingdom raised $9 billion from the sale of Islamic bonds to help bridge its budget deficit, forecast at SAR 198 billion ($53 billion) this year.