Moody's assigns debut rating to Saudi Arabia's PIF

Moody's Investors Service assigned its fifth-highest investment grade rating to the Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund, in its first rating of the government-owned entity.

The agency assigned PIF an A1 long-term issuer rating, an A1 baseline credit assessment (BCA) and a stable outlook on all ratings, Moody's said in a statement on Monday.

“PIF's A1 issuer rating and stable outlook are aligned with those of the government of Saudi Arabia (A1 stable)," Moody's said.

“The rating reflects its stand-alone creditworthiness … combined with a 'very high' level of interdependence between the kingdom and PIF and a 'very high' likelihood of extraordinary support being provided to PIF from the kingdom if ever required.”

PIF, which has about $480 billion in assets under management, is the main vehicle for growing Saudi Arabia's investments domestically and abroad as Crown Prince Mohammed bin Salman, who is also the chairman of the sovereign wealth fund, seeks to diversify the economy from oil through his Vision 2030 strategy.

PIF's A1 rating reflects the fund's “very strong” fundamental credit strengths, taking into account factors such as the large scale of its total assets, a steady dividend income stream and a high-quality investment portfolio, investments across diversified sectors both locally and internationally, a “very strong” financial profile with very low leverage and very high interest coverage, as well as an “excellent” liquidity profile, Moody's said.

The rating agency expects the fund to maintain sizeable cash balances, in addition to an undrawn revolving credit facility to finance potential acquisitions and investments.

More than half of PIF's portfolio is made up of listed investments that it can sell if liquidity needs arise, providing an extra buffer to already very strong levels of liquidity, Moody's said.

“Moody's also expects the fund to continue to receive asset transfers and cash contributions from the kingdom in line with its vision to grow its assets under management in the coming decade,” it added.

The rating agency expects dividend distributions to remain “very limited to none” in the near future.

PIF's liquidity will also be bolstered by the committed payments from Saudi Aramco (rated A1, stable) to the fund for several years for its sale of Saudi Basic Industries Corporation (Sabic) in June 2020 for $69bn, Moody's said.

Under its five-year strategy revealed in 2021, PIF will focus on 13 core domestic sectors.

They include renewables, health care, telecoms, media and technology, food and agriculture, automotive, transportation and logistics, real estate, aerospace and defence, construction and building components and services. The kingdom will also continue to develop entertainment, leisure and sports, financial services, metals and mining, and its retail sector.

Some of the companies established by the fund include the futuristic city known as Neom, the Red Sea Development Company, Qiddiya, the KAFD Development and Management company, SAMI, the Saudi Jordanian Investment Fund, Jeddah New Downtown Company, Saudi Entertainment Venture, Saudi Information Technology Company and National Energy Services.

PIF's stable outlook is aligned with the stable outlook on the rating of the Saudi government given the strong credit links between the two entities, the agency said.

“An upgrade of the government of Saudi Arabia's rating will likely therefore lead to an upgrade of PIF's rating,” it said. “A downgrade of PIF's rating in the absence of rating pressure on the sovereign is unlikely given our current view of the fundamental strength of the fund.”