Fitch adds voice to warnings over Qatar’s credit

Fitch added its name to those rating agencies taking a negative view on Qatar's creditworthiness in the wake of sanctions by a number of Arab countries on the Gulf state.

Fitch Ratings yesterday put ­Qatar on its watchlist for a ­possible credit rating downgrade, becoming the third major credit rating agency to warn about the implications of sanctions imposed several Arab countries.

The move by Saudi Arabia, the UAE, Bahrain and Egypt on June 5 to sever diplomatic and economic relations, has already led to similar credit warnings by Moody’s Investors Service and Standard & Poor’s (S&P), with the latter actually downgrading Qatar with a ­potential immediate impact on its borrowing costs.

The three Gulf states and Egypt expelled Qatari citizens and blocked access to and from their air, land and sea territory, accusing Qatar of funding terrorism and aggravating regional tensions.

As with the others, Fitch warned of the negative impact on Qatar’s economy of a deepening and prolonged crisis. Currently, Kuwait is leading regional efforts to mediate between Qatar and the Arab countries.

“While some discussions have taken place to resolve the crisis, it is becoming more likely that the crisis will be sustained and negatively affect Qatar’s economy and its credit metrics,” said Krisjanis Krustins, Fitch’s lead analyst for the Gulf.

“Qatar has been dependent on imports from its neighbours and on goods shipped from outside the region via the key port of Jebel Ali in the UAE. It is likely that given its vast resources Qatar will be able to handle strains on supplies of food and other goods, but at a cost, which might eventually be borne by the government.”

Iran said on Sunday that it had sent five planeloads of foodstuffs to Doha to help fill the gap left by the closing of regional ports, which normally supply much of Qatar’s consumer goods.

Iranian officials said they plan to send 100 tonnes of fresh fruit and vegetables daily to Qatar, a move which itself threatens to exacerbate the diplomatic tensions as Qatar’s rapprochement with Iran was cited as one of the reasons for the Saudi-led action.

S&P cut its rating on Qatar last week from AA to AA-, while Moody’s had already downgraded its rating to Aa3 from Aa2 last month, before the diplomatic crisis, citing economic worri es.

S&P estimated Qatar’s external debt to stand at about US$50 billion at the end of April.

Qatar has built up enough savings to fund deficits at current levels for another 20 years, Mr Krustins acknowledges. But he says the risks posed by this diplomatic dispute have complicated the picture, with an escalated and prolonged situation threatening to disrupt Qatar’s financial flows, its plans to diversify the economy, including building up tourism as it gears up to host the 2022 Fifa World Cup, and to put strain on its public finances.

Qatar is a relatively small oil exporter but is the world’s leading supplier of internationally-traded liquefied natural gas (LNG), which had already been suffering from a supply glut and price slump for the last several years.

The sanctions put it in a weaker bargaining position with LNG buyers, particularly its biggest clients in Japan, which buys about 13 per cent of its LNG from Qatar. Jera, a joint venture between Tokyo Electric Power Co and Chubu Electric Power Co, has LNG contract negotiations coming up soon with Qatar.

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