Fitch Ratings has recently affirmed the Saudi Public Investment Fund’s (PIF) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at “A+”. The rating underscores Saudi Arabia’s commitment to economic development amidst global economic uncertainties. This decision extends to PIF’s special-purpose vehicle (SPV) GACI First Investment Company. in addition, PIF’s trust issuance program was also rated “A+” via SUCI Second Investment Company (SSIC).
PIF’s strategic role in Vision 2030
Fitch categorizes PIF’s status, ownership, and control as “Very Strong”. It emphasized its pivotal role as a long-term investment fund supporting the Kingdom’s Vision 2030 agenda. Established in 1971, PIF operates under Royal Decree M/92, contributing significantly to non-oil GDP growth. It also promoted investing domestically and internationally across diverse sectors.
Fitch highlights the ‘Very Strong’ track record, with the government committing SAR632.8 billion to PIF following the reorganization under the Council of Economic Development Affairs (CEDA). This move aligns with the government’s FY23 budget, indicating ongoing financial backing for national funds, including PIF.
This active support is mirrored also at the Holdco level, with total equity funding comprising 95 percent of total assets. Moreover, the government’s recent transfer of 8 percent of Saudi Aramco’s stake is expected to bolster PIF’s dividends base. Half, or 4 percent, of the equity stake was given to PIF and the other 4 percent was given to PIF’s subsidiary SANABIL.
Meanwhile, Fitch expects the government to waive PIF’s dividend payment over the forecast period. Thus, it underlies a move to deploy more funds into PIF and subsidiaries to execute its policy mandate under Vision 2030.
PIF’s indispensable socio-political role
PIF is Saudi Arabia’s sole sovereign wealth fund, with no direct substitutes. Its strategy aligns with Vision 2030 and has created 1.8 million jobs across 13 strategic sectors. Therefore, Fitch believes that any default could jeopardize Saudi’s Vision 2030 objectives. It could potentially lead to significant political repercussions and hinder the nation’s strategy to promote the non-oil sector.
Fitch expects PIF to gradually evolve as a reference issuer of Saudi Arabia. It acknowledges PIF’s financial implications in case of default. Moreover, PIF’s debt is not a significant component of the government’s general debt. However, a default could impact the cost of borrowing for the government and related entities.
Examining PIF’s operating performance, Fitch notes a decline in net income and return on assets by -1 percent in 2022 from 11 percent in 2020. This was due to fair value appraisal of investment securities. However, net interest income from banking operations remained stable. It increased to SAR37 billion at the end of 2022 compared to SAR31 billion in 2021.
Meanwhile, Fitch-adjusted cash EBITDA, as a proxy of operating cash flow, remained strong and increased to SAR76.9 billion in 2022.
PIF, from 2020 to 2022, disclosed minimal net debt relative to its earnings before EBITDA on a consolidated basis. At the holding company level, PIF maintained a positive net cash position. Furthermore, the Fitch-adjusted EBITDA for the group displayed robust coverage of interest expenses related to non-financial operations. It reached approximately 21 times in the years 2020 to 2022. Additionally, the net adjusted debt stood at 3 percent of the net equity in 2022.
GRE criteria and short-term ratings
Following its Government-Related Entities (GRE) Criteria, Fitch considers PIF as a GRE affiliated with the Saudi government. Fitch aligns PIF’s ratings with those of the sovereign ratings, regardless of PIF’s independent evaluation. This decision is grounded in Fitch’s analysis of the strong connection between PIF and the Saudi Arabian government. Thus it evaluates the extent of support provided to PIF by the government. The determination is further supported by an overall government support score of 50 out of a possible 60.
Moreover, if the long-term issuer default ratings (IDRs) are aligned with those of the government, the short-term IDRs will also be aligned accordingly. As a result, Fitch maintains equality between PIF’s short-term IDRs and those of the Saudi sovereign, which is rated ‘F1+’. This equalization reflects the assessment that PIF’s short-term creditworthiness is closely tied to that of the Saudi government.
The ‘A+’ Long-Term Local-Currency (LTLC) IDR assigned to PIF aligns with a ‘AAA(sau)’ rating on the national ratings correspondence scale for Saudi Arabia. In a top-down evaluation, Fitch has equalized PIF’s LTLC IDR with that of Saudi Arabia. As a result, there is no adjustment or decrease applied to the sovereign’s National Rating.
This equivalency leads to PIF being assigned an ‘AAA(sau)’ national rating. This indicates a high level of creditworthiness in the context of Saudi Arabia’s national scale. The decision underscores Fitch’s assessment that PIF’s creditworthiness closely mirrors that of Saudi Arabia.
The debt ratings of PIF are aligned with its Issuer Default Ratings (IDRs). This includes various components of PIF’s debt portfolio. Therefore, the debt ratings of these different instruments and programs within PIF’s portfolio are directly linked to PIF’s overall creditworthiness as indicated by its Issuer Default Ratings. This alignment provides investors and stakeholders with a coherent assessment of the risk associated with PIF’s debt obligations.
Moreover, PIF’s net Fitch-adjusted group debt experienced a significant decrease. It declined from SAR 361.8 billion in 2020 to SAR 48.2 billion in 2022. This reduction in net debt indicates an improvement in PIF’s overall financial position. At the holding company level, gross debt amounted to SAR 75 billion. This figure represents the total debt at the broader organizational level. However, PIF maintained a net cash position when considering cash and cash equivalents. This means that the organization holds more liquid assets than the amount of debt it owes, contributing to a robust financial position.
As of the end of 2022, the group’s unrestricted cash was sufficient to cover at least 1x (one time) PIF’s total outstanding group debt. This signifies a healthy liquidity position, providing a safety cushion for meeting financial obligations. Therefore, Fitch anticipates no significant changes in PIF’s liquidity and debt structure over the medium term. This implies a level of stability and financial predictability in PIF’s operations and financial health.
Access to financial markets
PIF has demonstrated solid and very good access to both international financial and capital markets. This access allows PIF to raise funds and manage its financial needs effectively on a global scale. In 2022, PIF entered the green bond market, issuing bonds with various maturities, including 5-, 10-, and 100-year terms. Subsequently, in February 2023, PIF continued its green bond issuances with maturities of 7-, 12-, and 30-years. This move reflects PIF’s commitment to sustainable financing. Moreover, in October 2023, PIF issued its inaugural USD 3.5 billion sukuk. This indicates the diversification of its financing instruments.
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