The Daily Update - Moody's Upgrades Qatar

On Friday, the rating agency Moody’s followed Fitch by raising Qatar’s outlook back to stable from negative, whilst reaffirming the long-term issuer and foreign-currency senior unsecured debt ratings at Aa3. According to a statement issued with the assessment Moody’s stated ‘Qatar can withstand the economic, financial, and diplomatic boycott by Saudi Arabia, the UAE, Bahrain, and Egypt in its current form, or with possible further restrictions, for an extended period of time without a material deterioration of the sovereign’s credit profile’, adding ‘This assessment is in part based on evidence of broad resilience of Qatar’s credit metrics to the economic and financial blockade over the past 13 months’.

The Aa3 rating remains supported by a combination of huge net assets which, including the  sovereign wealth fund (QIA), Moody’s estimates at 137% of GDP at the end of 2017, per-capita income of nearly $62,000 and over 140 years of large hydrocarbon reserves. In our own NFA universe, Qatar is a 7 star rated country, one of the highest of all the countries we analyse. Moody’s also believes that the ongoing spat is having little effect, saying ‘The stable outlook reflects Moody’s view that Qatar’s credit metrics will likely remain consistent with an Aa3 rating as the boycott continues. The stable outlook also makes provision for some additional restrictions and is supported by Moody’s view that a quick resolution or a significant escalation of the regional dispute materially affecting Qatar’s credit metrics are a low-probability event’.

We still believe that at the current levels, Qatar makes for a good investment opportunity, even after the rally that we have seen over the last few weeks. Qatar 6.4% 2040 (rated Aa3/AA- by Moody’s/S&P) for example, trades on a yield of 4.72%, with a cushion of just under 4.5 credit notches on our model, with a return and yield to maturity of 16.75%.

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