Moody's downgrades Bahrain, Oman ratings

30/07/2017 07:49 AST

Moody's Investors Service has downgraded Bahrain's long-term issuer rating to B1 from Ba2 and maintained the negative outlook and Oman's long-term issuer and senior unsecured bond ratings to Baa2 from Baa1 and changed the outlook to negative from stable.

Bahrain

The main driver for the rating downgrade is Moody's view that the credit profile of the Bahraini government will continue to weaken materially in the coming years, predominantly because despite some fiscal reform efforts there is a lack of a clear and comprehensive consolidation strategy.

In particular, the rating agency expects Bahrain's government debt burden and debt affordability to deteriorate significantly over the coming two to three years.

The negative outlook reflects continued downside risks to the rating, which manifest themselves in heightened government and external liquidity risks. Furthermore, although Bahrain has benefited from the support of neighbouring countries during times of stress in the past, such support at this juncture lacks clarity, both in its form and timeliness.

Moody's has today also lowered Bahrain's long-term foreign-currency bond ceiling to Ba2 from Baa3 and long-term foreign-currency deposit ceiling to B2 from Ba3. The short-term foreign-currency bond ceiling was lowered to Not Prime from Prime-3, whereas the short-term foreign-currency deposit ceiling remains unchanged at Not Prime. Bahrain's long-term local currency country risk ceilings were lowered to Ba1 from Baa2.

In addition, the long-term foreign-currency bond ceiling for Bahrain -Off Shore Banking Center was lowered to Baa1 from A3 while the foreign-currency deposit ceiling remains at Baa1. The short-term foreign-currency bond and deposit ceilings for Bahrain - Off Shore Banking Center remain unchanged at Prime-2.

Rationale for the downgrade to B1

The rating downgrade to B1 reflects Moody's view that the credit profile of the Bahraini government will continue to weaken materially in the coming years. In particular, the rating agency expects Bahrain's government debt burden and debt affordability to weaken further significantly over the coming two to three years. In Moody's view, the B1 rating better captures this anticipated weakening of the government balance sheet, than the previous rating of Ba2.

Oman

The key driver for the rating downgrade is that in Moody's view progress towards addressing structural vulnerabilities to a weak oil price environment has been more limited than expected, reflecting institutional capacity constraints to address the large fiscal and external imbalances.

The negative outlook reflects Moody's view that despite a number of credit strengths the balance of risks to the Baa2 rating are skewed to the downside.

Moody's has today also lowered Oman's long-term foreign-currency bond ceiling to Baa1 from A3 and its long-term foreign-currency bank deposit ceiling to Baa2 from Baa1. At the same time, the short-term foreign-currency bond and deposit ceilings remain unchanged at Prime-2.

Oman's long-term local-currency country risk ceilings were lowered to Baa1 from A3. Today's rating action also applies to Oman Sovereign Sukuk S.A.O.C, for which the backed and senior unsecured ratings were downgraded to Baa2 from Baa1 and the senior unsecured medium-term note program was downgraded to (P)Baa2 from (P)Baa1.

Rationale for the downgrade to Baa2

The key driver for the rating downgrade is that in Moody's view progress towards addressing structural vulnerabilities has been more limited than expected, reflecting institutional capacity constraints to address the large fiscal and external imbalances. These imbalances manifest themselves in the expected continued reliance on hydrocarbons for government revenues (average share of 71 per cent over the coming years) and exports (average share of close to 6

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