DOHA: Moody’s Investors Service (Moody’s) has changed the outlook on Arab Petroleum Investments Corporation (Apicorp) to positive from stable and affirmed Apicorp’s long-term issuer and senior unsecured rating at Aa3.
The key driver of the outlook change to positive reflects progress that Apicorp, the multilateral development bank (MDB) owned by the member states of the Organization of Arab Petroleum Exporting Countries (Oapec), continues to make in reducing balance sheet maturity mismatches and its reliance on wholesale deposits in its funding mix by diversifying and lengthening its funding profile.
Apicorp’s Aa3 rating remains supported by very high capital adequacy, improving asset quality, and very high strength of member support. While robust and improving, Apicorp’s liquidity position nevertheless continues to be constrained by the less liquid nature of some of its treasury investment assets and their exposure to borrower risk.
Meanwhile, its high concentration of operational assets in the oil and gas sector and in the Arab region, in accordance with the corporation’s mandate to finance petroleum projects and industries that benefit its member states, presents potential challenges should oil prices remain low over a protracted period of time and/or Apicorp’s borrowers and shareholders face economic, geopolitical and security challenges.
In the same rating action, Moody’s also affirmed Apicorp’s senior unsecured MTN rating at (P)Aa3, the senior unsecured rating of Apicorp Sukuk Limited at Aa3, and the senior unsecured MTN rating of Apicorp Sukuk Limited at (P)Aa3. Apicorp Sukuk Limited is a special purpose vehicle set up by Apicorp for sukuk issuance, whereby sukuk investors (certificate holders) are exposed to the senior unsecured credit risk of Apicorp. Apicorp’s short-term issuer rating is affirmed at Prime.
Apicorp has continued to actively diversify and lengthen the maturity profile of its funding sources in recent years. Whereas short-term borrowings, including wholesale deposits, averaged 60 percent of liabilities in 2010-2013, that share had fallen to 45 percent in 2015 and further to 33 percent in 2017. Meanwhile, wholesale deposits declined to less than 85 percent of liquid treasury assets, implying that, in contrast with past patterns, Apicorp’s loan book and the direct investment portfolio are no longer funded by short-term deposits. A track record of lower reliance on wholesale deposits would point to a stronger liquidity profile.
Moreover, over the past several years, more than two-thirds of all wholesale deposits have remained stable — defined as deposits with at least three years of consecutive renewal — which indicates a relatively low risk of large deposit withdrawals posed to the overall liquidity position.
Furthermore, a large majority of these deposits (70 percent in 2017) originated from government or government-related entities in the member countries, which underscores Moody’s expectation that they will remain stable in the coming years.
