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Credit Analysis
Credit Analytics Case Study Saudi Aramco

Aug. 28 2018 — An expanded framework to assess the credit risk of private companies when financial statements are not available.

Saudi Aramco initial public offering – is it on or off? The latest news suggests that this is still in the cards, despite speculations that Saudi Arabia may be scrapping the plan to list its state-owned energy company altogether. The proposed initial public offering of 5% of the company would be on the Saudi Stock Exchange, with possible international listings on the New York, London, and Hong Kong stock exchanges; the total projected valuation of $2 trillion would make it the largest IPO in history.1

Currently, there is no official information on the company’s accounts, however a first glimpse of its finances suggests a net income of $34 billion in first half of 2017 alone, with virtually no debt.2

The obvious question thus arises on what the credit risk of this giant may be. Some will assume this is more of a philosophical question, given the firm is fully owned by Saudi Arabia, currently rated A- by S&P Global Ratings3. However, a credit risk analyst should also consider the credit risk of this company on a standalone basis.

At S&P Global Market Intelligence, we have devised a universal framework that allows users to estimate the credit risk of private companies of any size, globally, with or without financials. The framework is called Expanded PD Model Fundamentals framework and leverages the pre-scored database created using S&P Global Market Intelligence’s PD Model Fundamentals.

The framework leverages the database of over 750,000 private companies available on the S&P Capital IQ platform and scored via Credit Analytics’ PD Model Fundamentals, a statistical model that uses company financials and other socio-economic factors to estimate a firm’s probability of default (PD).

When financial statements are not available for a specific company, the framework looks within Credit Analytics’ PD Model Fundamentals pre-scored database for similar companies operating in the same industry sector and country/region, to assign an initial PD. This can be then scaled to account for company size (estimated by looking at the total revenues or the number of employees), level of diversification, quality of management and payment behaviour considerations.

Let us apply this framework to Saudi Aramco and see what we get.

Figure 1 shows an overall standalone score, prior to government support, of bbb+.4

Figure 1: Credit risk of Saudi Aramco, assessed via S&P Global Market Intelligence’s Expanded PD Model Fundamentals framework.

* Based on number of employees (70,762) reported in 2017 (
** Assumed to be at their best, given this is the most profitable and one of the largest companies in the world.
Source: S&P Global Market Intelligence. For illustrative purposes only.

Let us see how and why we arrive at this:

  • Anchor: Within PD Model Fundamentals Private’s pre-scored database, private firms in the Energy sector and headquartered in Emerging Markets have a long-term average PD that gets mapped to a “b+” score. This score is based on companies within S&P Global Market Intelligence’s database with a median revenue size of $185m.
  • Size Adjustment: Internal analysis at S&P Global Market Intelligence shows that credit risk tends to reduce with company size. Keeping into account Saudi Aramco’s number of employees, the size adjustment improves the credit score to bbb- (+4 notches).
  • Qualitative Adjustments: Statistical models do not normally account for qualitative elements, such as the revenue diversification attained by a company operating in different countries/industries, its quality of management and payment behaviour towards its counterparties. Overall, Saudi Aramco’s credit score is improved by 2 notches. This is the breakdown:
    • Diversification adjustment: Due to the global nature of its operations,5 Saudi Aramco benefits from 2 notches uplift, leading to an implied score of bbb+;
    • Quality of management: We assume the quality of management is at its best, considering the composition and stability of the firm’s board of directors. Despite this, there is no net effect on the credit strength of the company because within a giant company, management actions are not expected to play an immediate and impactful effect as within small/agile entities.
    • Payment behaviour: We assume Saudi Aramco is able to maintain regular payment towards its creditors. In our framework there is no reward for displaying good/regular payment behaviour, thus there is no further positive impact on the overall score.

One may argue that it is odd for such a giant entity, virtually debt-free and 100% government owned, to be assessed just at “bbb+”. However:

  • A correct credit risk assessment must take into account industry considerations. In PD Model Fundamentals we take into account the industry risk; in this case this weighs and drags down the credit risk assessment of energy companies, due to their strong exposure to oil price volatility.
  • The assessment provided by our framework does not include any parental (where applicable) and/or government support considerations. At S&P Global Market Intelligence, we offer an overlay that allows including support considerations. Due to Saudi Arabia’s 100% ownership of the firm, the credit score would raise to a- (as shown in Figure 1), being equalized to S&P Global Market Intelligence’s sovereign score assigned to Saudi Arabia.

In summary the Expanded PD Model Fundamentals framework allows the assessment of credit risk for private companies of any size, globally, thus facilitating coverage of a typical credit risk portfolio, including large-, medium- and small-revenue borrowers The credit score adopts a Through-the-Cycle view, but the framework gives users the flexibility to incorporate in the probability of default a credit cycle and market-view consideration, when a Point-in-Time and (market-driven) forward looking view is needed.

1 Source (as of 2018, August 22nd): S&P Global Market Intelligence, available at
2 Source (as of 2018, April 13th):
3 Long-Term Foreign Currency Sovereign Rating; source (as of 2018, April 6th): S&P Global Ratings’ “Research Update”.
4 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.

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