UPDATE 1-Fitch downgrades Aramco to 'A' with stable outlook, after attacks on oil facilities

Fitch on Monday downgraded Saudi Aramco by one notch after attacks last month on two production facilities, putting the rating of the state-owned oil giant at par with the one of Saudi Arabia, which the agency downgraded on Sept. 30.

Aramco – the world's largest oil company and the most profitable – obtained its first credit rating of A+ by Fitch in April ahead of its inaugural public bond issue. Fitch said at the time that the company had a higher "standalone credit profile" equivalent to AA+', but that its rating was "capped by that of Saudi Arabia in view of strong linkage between the state and the sovereign".

The downgrade by one notch, from A+ to A, but a stable outlook followed the Sept. 14 attacks on Aramco's oil installations, Fitch said, adding the "downgrade also took into account rising geopolitical tensions in the region, but also the country's continued fiscal deficit, among other factors". The downgrade, which comes as Aramco is pressing ahead with plans to launch an initial public offering (IPO) as early as this year. Investors look at credit ratings as one of the metrics used to establish the risk profile of governments and companies.

"The IPO itself is unlikely to have any major effect on Saudi Aramco's financial position," Fitch said. Fitch said Aramco's Standalone Credit Profile (SCP) is unchanged at 'aa+'.

"We estimate the accident will not have a material impact on Saudi Aramco's full-year operational and financial performance," it said. Saudi Aramco has committed to increase its dividend payments to at least $75 billion per year in 2020 and beyond.

"Our financial modelling shows that the company should have capacity to maintain this level of dividends while being in line with our guidance for the 'aa+' SCP under our current price deck assumptions," Fitch said. The IPO is the centrepiece of Saudi Crown Prince Mohammed bin Salman's plans to attract foreign capital and wean off the largest Arab economy away from oil revenues.

Aramco has approached sovereign funds in countries on friendly terms with Saudi Arabia and wealthy Saudi families to build an investor base to achieve the $2 trillion valuation targeted by Crown Prince Mohammed bin Salman. But the Sept. 14 strikes that knocked out more than half the production of the world's top oil exporting nation have cast doubts on the timing of the process and the company's valuation.

Riyadh blamed adversary Iran for the attacks, a charge Tehran denies. Fitch on Sept. 30 downgraded Saudi Arabia's credit rating to A from A+, citing rising geopolitical and military tensions in the Gulf following the attacks and a deterioration of the kingdom's fiscal position.

"Although oil production was restored fully by end-September, we believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage," the agency said at the time. The Saudi finance ministry said then it was disappointed by the "swift" downgrade and urged Fitch to reconsider it, arguing the move did not reflect the kingdom's response to the Sept. 14 attack or its capacity to handle adversity.

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