Moody’s upgrades Apicorp rating on strong liquidity and funding diversification
The energy sector-focused multilateral lender has also eliminated its short-term asset-liability mismatches, the rating agency says
Moody’s Investors Service upgraded long-term ratings for Arab Petroleum Investments Corporation (Apicorp), a multilateral lender owned by the 10 members of the Organisation of Arab Petroleum Exporting Countries, but revised down its outlook as challenges rise for the energy sector-focused lender in most of its markets.
Apicorp’s long-term issuer and senior unsecured rating was upgraded to Aa2 from Aa3, both high quality and very low credit risk rating categories. Its short-term issuer rating was affirmed at Prime-1, the highest level, indicating its ability to repay short-term debt.
A “steady improvement” that the corporation has made “in its liquidity and funding profile by diversifying its funding sources”, is among the key drivers of the rating upgrade, Moody’s said.
This has allowed Apicorp to “significantly reduce its reliance of short-term wholesale deposits and eliminate short-term asset-liability mismatches”, the rating agency said.
Apicorp saw profit to its shareholders drop 53 per cent year-on-year to $70.3 million (Dh258.2m) in the first half of 2019, mainly due to a one-off gain of Dh86.7m in the first half of 2018 on the sale of its stake in National Petroleum Services.
At the same time, the lender’s interest income grew 36 per cent to $146.1m and chief executive Ahmed Ali Attiga said the corporation completed six medium-term funding transactions worth $1.4 billion from international markets. Apicorp attributed the growth in recurring income to its corporate finance and treasury business lines, which grew 44 per cent and 78 per cent, respectively.
Moody’s had revised Apicorp’s outlook upwards from stable to positive in October, but has now reverted it to stable, mainly due to “the challenging operating environment in a number of countries where Apicorp operates, stemming mostly from the regional geopolitical tensions and the pressures posed by the moderate oil price environment”, the report said.
Oil markets have fluctuated this year on the back a softening global economy and concerns about waning demand. Prices have gone back to trading below $60 per barrel, after rising about 20 per cent after the September 14 attacks on Saudi Arabia’s oil facilities, which knocked out 5 per cent of global crude supply.
Moody’s, however, said it is confident these factors are balanced by Apicorp's proven resilience to these risks over the past four years, and a push towards greater diversification of its portfolio, as well as its strong and improving corporate governance and risk management practices.
Over the past four years, the Dammam-based Apicorp has reached out to international capital markets with offerings in multiple products, currencies and jurisdictions. Close to half of the lender's investor base now lies outside the GCC, according to the Moody's report.
Through increased medium-term debt issuance, the lender has reduced its reliance on wholesale deposits, bringing it down from nearly 45 per cent of total liabilities in 2015 to 15 per cent in 2018. The bank has also diversified the treasury portfolio away from the key borrower countries, with the share of Middle East and North Africa treasury assets declining from 87 per cent in 2015 to 67 per cent in June of this year.
In its Mena Annual Energy Investment Outlook report in April this year, Apicorp said total planned and committed investments in the energy sector in the region will amount to $1 trillion over the next five years.
Updated: October 12, 2019 01:22 PM