Moody’s Affirms A2 Issuer Ratings Of Saudi Real Estate Refinance Company; Outlook Remains Stable
Rating Action: Moody’s affirms A2 issuer ratings of Saudi Real Estate Refinance Company; outlook remains stableGlobal Credit Research – 03 Mar 2022Limassol, March 03, 2022 — Moody’s Investors Service (“Moody’s”) has today affirmed Saudi Real Estate Refinance Company’s (SRC) issuer ratings at A2/P-1. At the same time, the rating agency affirmed the Aa2.sa/SA-1 national scale issuer ratings and the baa3 Baseline Credit Assessment (BCA). The outlook assigned to SRC remains stable.RATINGS RATIONALEMoody’s decision to affirm SRC’s baa3 BCA captures the company’s solid asset quality (non-performing financings of 0.2% as of September 2021) and strong capitalization (tangible common equity to total tangible assets of 45% as of September 2021), which are moderated by a still evolving profitability profile (0.7% of average managed assets as of September 2021), high reliance on wholesale funding and concentrated exposure to the relatively new mortgage market in Saudi Arabia.In turn, SRC’s A2 long-term issuer ratings incorporate four notches of rating uplift from its baa3 BCA, derived from Moody’s assumption of a very high probability of support from its 100% shareholder, the Public Investment Fund (PIF, Saudi sovereign wealth fund). Moody’s support assumptions also capture SRC’s important policy mandate of increasing home ownership among Saudi nationals.The decision to impute parental support uplift in SRC’s ratings follows Moody’s assignment of first time A1 long-term issuer rating and a1 BCA to the PIF, in February 2022. In light of these assignments, Moody’s no longer considers appropriate to rate SRC under the Government-Related Issuers (GRI) Methodology as Moody’s does not normally designate subsidiaries of a GRI as also being GRI. The removal of the GRI status has no rating implications as the government support uplift previously incorporated in SRC’s A2 long-term issuer rating under the GRI Methodology is now routed through PIF.STABLE OUTLOOKThe stable outlook on SRC’s issuer rating reflects the resilience of the operating environment in Saudi Arabia and the expectation that the capacity of PIF to support SRC will remain unchanged. The stable issuer outlook further balances SRC’s strong capital and assumptions that PIF support will be forthcoming in case of need, against the high reliance on wholesale funding and evolving profitability.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSSRC’s ratings could be upgraded if PIF’s capacity to support it further improves, as this is indicated by an upgrade of its BCA. Upward pressure on SRC’s issuer ratings could also materialise following improvements in SRC’s funding and profitability metrics, while maintaining its strong asset quality and capitalisation.Downward pressure on the SRC’s issuer ratings could materialise following (1) a weakening PIF credit profile that impacts its capacity and/or willingness to support SRC; (2) severe losses on SRC’s mortgage portfolio that erode a significant portion of its capital; and/or (3) the company failing to adequately manage its assets and liabilities mismatch leading to heightened liquidity and market risks.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Moody’s National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody’s global scale credit ratings in that they are not globally comparable with the full universe of Moody’s rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a “.nn” country modifier signifying the relevant country, as in “.za” for South Africa. For further information on Moody’s approach to national scale credit ratings, please refer to Moody’s Credit rating Methodology published in May 2016 entitled “Mapping National Scale Ratings from Global Scale Ratings”.
While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons.
The local market analyst for this rating is Ashraf Madani, +971 (423) 795-42.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form.
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Source: finance.yahoo
