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Fitch downgrades Saudi Aramco's rating after September 14 oil attacks

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Fitch downgrades Saudi Aramco's rating after September 14 oil attacks

Highlights

Saudi Arabia rating lowered last month to A

Downgrade before Aramco's planned IPO

IPO won't have 'major effect' on Aramco financial position: Fitch

Dubai — Fitch Ratings downgraded Saudi Aramco's long-term issuer default rating (IDR) to A from A+ following the September 14 drone and missile attack on two key oil facilities that temporarily slashed its output by half.

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Fitch last month downgraded Saudi Arabia's rating also to A due to the "vulnerability of Saudi Arabia's economic infrastructure and continued deterioration in Saudi Arabia's fiscal and external balance sheets," it said at the time. The downgrade followed the attack on the company's Abqaiq plant, the world's largest oil processing facility, and Khurais, the country's second largest oil field.

"We have downgraded Saudi Aramco's IDR to 'A' given the rating is capped by that of the sovereign to reflect interdependency between the two and the influence the state exerts on the company through strategic direction, dividends and taxation," Fitch said in a statement on Monday, adding that it has maintained a stable outlook for the company. Aramco didn't immediately respond to an email seeking comment.

Saudi Arabia is currently preparing Aramco for a local and international listing of up to a 5% stake, a sale that is expected to take place between 2020 and 2021.

Aramco, the world's most profitable company and the biggest oil producer, issued its first debut international bond of $12 billion in April, which was heavily oversubscribed with orders exceeding $100 billion.

"The (Aramco) downgrade also took into account rising geopolitical tensions in the region, but also the country's continued fiscal deficit, among other factors," Fitch said.

Output restored

The attack on Abqaiq and Khurais, the biggest ever disruption to Saudi Arabia's crude oil production, was claimed by Yemen's Iranian-aligned Houthi rebels. Saudi officials have said the attack was sponsored by Iran, which denied being involved.

The September 14 incident slashed Saudi Arabia's production by 5.7 million b/d, but the country's energy minister said last week that production was restored to pre-attack levels of around 9.9 million b/d, with oil output capacity returning to 11.3 million b/d. The country aims to restore full oil capacity to 12 million b/d by the end of November.

Attacks on Saudi Arabia's Abqaiq processing facility and Khurais field caused its crude output to plummet to 8.45 million b/d in September, according to the latest S&P Global Platts Opec survey.

Fitch said the attack will not dent Aramco's 2019 profitability. Aramco posted a 12% drop in first half profit to $46.9 billion, its first ever disclosure of earnings.

"We estimate the attack will have a very limited impact on Saudi Aramco's operational and financial performance in 2019," Fitch said.

Fitch also said the IPO will not have an impact on Aramco, which is trying to lure investors with commitments to increase dividend payments to at least $75 billion a year in 2020 and beyond.

"The IPO itself is unlikely to have any major effect on Saudi Aramco's financial position," Fitch said. "However, the company has already benefited from lower taxes, the domestic oil product price equalization and other initiatives put forward by the government in anticipation of the IPO."

--Dania Saadi, dania.el.saadi@spglobal.com

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com