Russia Leads List of Oil States at Risk of Moody's Downgrade

Russian Oilfields, Pumping Jacks And Storage Operated By Bashneft PAO

Oil pumping jacks in the village of Dyurtyuli, Russia.

Photographer: Andrey Rudakov/Bloomberg
  • Five of six Gulf Cooperation Council nations in review for cut
  • Moody's decision follows recent Standard & Poor's downgrades

The credit ratings of more than 10 oil-producing nations in the developing world were placed on review for a downgrade by Moody’s Investors Service, which cited the shock of depressed oil prices on these economies.

The list includes Russia, Kazakhstan, Nigeria, Angola, Gabon and Trinidad and Tobago, according to statements released by Moody’s on Friday in New York. Five of the six Gulf Cooperation Council nations -- Kuwait, Saudi Arabia, the United Arab Emirates, Bahrain, and Qatar -- were also put on review for a cut, Moody’s said, adding that it expects to complete its review within two months. The ratings of Bahrain and Congo were downgraded in addition to being placed on review, while the credit outlook for Venezuela was lowered to negative from stable.

The moves follow Standard & Poor’s, which has already issued a spate of downgrades in reflection of the selloff in oil and its impact on the creditworthiness of producers in emerging markets. The collapse in commodity prices has forced governments to trim the spending that has helped fuel their economic growth over the past decade. Fiscal deficits are on the rise as these countries increase borrowing to make up for the shortfall in
revenue.

Bearish Signal

“This sends a bearish signal to the markets, even though a plunge in oil prices is not news to anyone,” Wayne Lin, New York-based money manager at QS Investors LLC, said by phone. “As oil prices are plunging, revenue of these commodity exporters are greatly impaired, which creates a challenge to their ability to balance the budgets, run the country and control and service the debt.”

Moody’s has shown Russia needs to adapt its budget to the new realities of the commodities market, according to Russian Finance Minister Anton Siluanov. The government is working on measures to balance the budget in the mid-term, and the Finance Ministry will be in “constant contact” with the rating company during its review to provide all necessary information, he said in Moscow on Saturday.

Moody’s affirmed Norway’s AAA rating in a separate statement, saying that while oil prices will remain low for several years it has not affected the credit profile of western Europe’s biggest oil and gas producer. Oman, the poorest GCC country on the basis of economic output per person, was cut for the first time by Moody’s last month. That rating is also under review for a further downgrade.

The reviews will allow Moody’s “to determine the extent of any ratings adjustments required for these sovereigns or, conversely, the extent to which their economic and fiscal strength, financial buffers and capacity to implement credit-supportive policies insulate them from the impact of the oil price shock,” the ratings company said.

Qatar Rating

Qatar’s AA credit rating was affirmed earlier Friday by S&P, which cited the nation’s ample natural gas reserves and an infrastructure investment program as drivers of continued growth.

The country is standing out as S&P has already cut three of the six members of the GCC countries. Saudi Arabia, Oman and Bahrain had been forced to trim the government spending that has fueled economic growth over the past decade, while increasing borrowing to make up for the shortfall in revenue.

“Qatar’s economy will remain resilient,” S&P said of the world’s largest liquefied natural gas exporter. “Qatar has accumulated considerable foreign assets over the past decade, as a result of developing its natural resources.”

S&P, which has been the toughest among ratings firms on emerging-markets’ creditworthiness, said the outlook on Qatar is stable.

“We are seeing that credit agencies are connecting the dots and formalizing what everybody has been trading on,” Lin said. “For large institutions that had mandates that allowed to invest in these countries even with the drop in oil, this Moody’s decision could mean that now is the time to leave.”

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