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Thursday, 14 April 2016
Fitch Downgrades Saudi Arabia Credit
Saudi Arabia's reputation for sterling finances encountered a setback Tuesday as Fitch Ratings downgraded the country's credit ratings.
The downgrades follow the crushing decline in oil prices, which has battered the country's fiscal picture even as it continues to pump out petroleum at a steady clip.
The agency downgraded Saudi Arabia's long-term and local-currency issuer ratings from AA to AA- and left the outlook for both ratings at negative, signaling possible future downgrades.
The move stemmed from Fitch's assumption that oil prices will average about $35 per barrel in 2016 and about $45 per barrel in 2017.
It also comes more than a month after Saudi Arabia oil minister Ali bin Ibrahim Al-Naimi told industry executives in Houston that a production cut by the Organization of the Petroleum Exporting Countries is "not gonna happen" despite a global glut of oil.
Looming new debt sales also weighed on the bond market. The U.S. Treasury is scheduled to sell $24 billion of three-year notes Tuesday, $20 billion of 10-year notes Wednesday and $12 billion of 30-year bonds Thursday.
Money poured out of the country for the 16th consecutive quarter in the final three months of 2015, the longest streak of quarterly outflows since the five years through September 1999, according to central bank data. An increase in South Africans investing abroad followed a gradual relaxation of exchange controls almost each year since 1995, about a year after Nelson Mandela’s African National Congress won the first all-race elections.
Firms generated just enough operating profit to cover the interest expenses on their debt twice, down from almost six times in 2010, according to data compiled by Bloomberg going back to 1992 from non-financial companies traded in Shanghai and Shenzhen. Oil and gas corporates were the weakest at 0.24 times, followed by the metals and mining sector at 0.52.
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