Another blow for Qatar as Moody's cuts three state entities' outlook

Qatar Petroleum, Qatar Electricity and Water, and Industries Qatar outlooks downgraded

Moody's cut Qatar Petroleum's outlook to negative from stable. Mona Al Marzooqi/ The National

The rating agency Moody's has downgraded the outlook on three Qatari related entities, after reducing its outlook on the country's sovereign rating earlier this week.

The investor service changed the outlook to negative from stable on the Aa3 long-term issuer rating of Qatar's national oil and gas company Qatar Petroleum (QP), the A1 long-term issuer rating of QP subsidiary Industries Qatar, and the A1 long-term issuer rating of Qatar Electricity and Water Company. At the same time, the rating agency affirmed the ratings on all three government related issuers.

"Today's action is in line with the rating action on the sovereign rating of the government of Qatar and primarily reflects the strong credit linkages between QP and the sovereign," the agency said.

On July 5,  Moody's downgraded Qatar's outlook to negative from stable, because of an increased probability that the country's dispute with some of its neighbours will not be resolved quickly.

The UAE, Saudi Arabia, Bahrain and Egypt on June 5 broke diplomatic ties with Qatar and cut off air, sea and land access to the country over Doha’s support for “terrorist groups aiming to destabilise the region”.

The dispute, which is the most serious spat between GCC members since the organisation’s creation in 1981, has wiped out billions from the sheikdom's bourse, disrupted the operations of the country's national carrier Qatar Airways, put the Qatari Riyal under pressure and disrupted supply routes.

While it is too early to say what the full impact the crisis may have on Qatar's economy, observers say a complete split between Qatar and its opponents that impacts the flow of natural gas would take matters to a new level of disaster.

“A complete and sustained break in commercial relations would increase inflation in imported consumer and construction products, reduce the traffic through Doha airport and hotels and on Qatar Airways," said Hasnain Malik, the global head of Equity Research at Exotix Capital in Dubai.

"Qatar clearly has the sovereign reserves to mitigate the impact on citizen welfare. The impact on non-gas growth is a different matter. The most serious long-term economic threat would be if Qatar’s gas customers were faced with the threat of sanctions. That sort of move, which is not currently envisaged, would elevate the fallout from this issue to a completely different level.”

As well as the three government entities, Moodys also downgraded the outlook on a slew of other companies and banks. The rating lowered the outlook on nine out of the 10 Qatari banks it rates to negative from stable on the expectation that cash reserves that banks have may dwindle amid outflows of external funding and rising costs of borrowing on account of low hydrocarbon prices.

Still, some observers say that investors haven't thrown in the towel completely yet as downgrading the outlook is not the same as cutting ratings.

"I think anyone looking to re-weight Qatar assets will wait as long as credit rating agencies use potential extended standoff as a reason for downgrading," said Sanyalaksna Manibhandu, the head of research NBAD Securities.