Fitch Ratings has downgraded Saudi Electricity Company’s (SEC) long-term issuer default rating (IDR) and senior unsecured rating to A+ from AA-. The US ratings agency says the outlook on the long-term IDR is negative.

The move follows the recent downgrade of Saudi Arabia and reflects Fitch’s top-down rating approach with a one-notch differential between the company and the sovereign ratings to reflect their continued strong links.

Fitch has also downgraded SEC’s outstanding sukuk issues, including issues under Saudi Electricity Global Sukuk Company, Saudi Electricity Global Sukuk Company 2 and Saudi Electricity Global Sukuk Company 3, to A+ from AA-.

SEC’s operational and strategic links with the Saudi government are strong, said Fitch. It added that while the legal links are moderate in the absence of an explicit sovereign guarantee for the majority of SEC’s debt, the Saudi government directly owns 74 per cent of SEC and indirectly owns another 7 per cent through Saudi Aramco.

“Historically, state financial support has been strong, which we assume will continue. At end-2015 SEC had SR48bn ($12.8bn) available under the total SR130bn ($35bn) of soft loans provided by KSA, which are interest-free. SEC is drawing down the soft loans of SR51bn ($14bn) announced in June 2011 and SR49.4bn ($13bn) announced in March 2014 by the KSA to partially finance its capital projects,” reported Fitch.

A corporate restructure of the company is also planned, and Fitch said this may weaken links with the government. The plan is subject to the approval of stakeholders and involves the creation of four generation companies; it will offer equity to external partners, while retaining a majority stake in each of the four companies and maintaining control of the board at the generation company level.

“Despite the intended efficiency gains, this may also pose some risks to SEC, in Fitch’s view, for example, if we believe that the links with the sovereign will be weaker as a result,” said the ratings agency.

Fitch downgrades Saudi Arabia on oil forecasts

 The Saudi flag

The Saudi flag

The Saudi flag

Fitch Ratings has downgraded Saudi Arabia’s long-term ratings due to lower estimates for oil prices in the next two years, the US-based ratings agency said.

Saudi Arabia’s long-term foreign and local currency issuer default ratings (IDR) were downgraded to AA- from AA with Fitch maintaining its negative outlook for the kingdom.

The ratings agency revised its assumptions for crude prices down to $35 a barrel for 2016 and $45 a barrel for 2017.

The government’s deficit widened to 14.8 per cent of GDP in 2015 after a deficit of 2.3 per cent in 2014. Read more