Friday, 29 March 2024

Its Sukuk company's A1 rating reaffirmed

Moody’s Upgrade STC’s bca to A1

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Moody’s Investors Service (“Moody’s”) has upgraded Saudi Telecom Company’s (STC) baseline credit assessment (BCA) to a1 from a2 and affirmed STC’s A1 long-term issuer rating.

Moody’s also affirmed STC Sukuk Company Limited’s A1 senior unsecured rating. The outlook on all ratings remains negative.

“The upgrade of STC’s BCA reflects the company’s track record of maintaining a conservative financial profile over the years and its ability to maintain very strong financial metrics”, says Julien Haddad, a Moody’s Vice President — Senior Analyst, and local market analyst on STC. “The upgrade also reflects STC’s leading position in the Saudi telecom sector, which has considerable growth opportunities”.

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The upgrade of the BCA to a1 from a2 reflects STC’s conservative financial profile and the ability of the company to maintain strong metrics despite some challenging times, including the oil price crash in 2015-2016 and more recently, the coronavirus pandemic.

STC’s debt to earnings before interest, taxes, depreciation and amortization (EBITDA) has systematically remained below 1.0x, while (EBITDA-capex)/interest expense has remained over 25x.

This is despite STC being a regular dividend payer and constantly investing in capex to maintain and upgrade its infrastructure.

STC has also built a strong balance sheet over the years, which allowed the company to build sufficient headroom in order to grow organically, through investments in its other business lines, or through acquisitions by growing its footprint outside of Saudi Arabia.

According to Moody’s, as of June 2021, STC had SR7.7 billion ($2.1 billion) in unrestricted cash and cash equivalents, in addition to SR2.9 billion ($0.8 billion) of short term Murabaha and SR3.9 billion ($1.0 billion) in the form of investments in a sukuk issued by the Government of Saudi Arabia, which the company can liquidate, should the need arise.

In addition, as the leading integrated telecommunications and information and communications technology (ICT) operator in Saudi Arabia, with more than 70% share of total revenue in 2020, STC is well positioned to take advantage of the growth opportunities in the Saudi telecom and ICT market.

Moody’s said that the telecom and technology sectors are two of the strategic sectors the government of Saudi Arabia is focusing on, in order to grow the non-oil economy and reduce its reliance on hydrocarbons.

STC has aligned its strategy with that of the government and has been investing in growing its other business lines, besides the core telecom operations.

Those include TAWAL (the towers business), solutions by STC (including integration, IoT, cloud services), Sirar by STC (cyber security) and STC Pay (financial services). All of this, while maintaining a very strong financial profile.

Moody’s classifies STC as a government-related issuer (GRI) because of its 76.2% indirect government ownership.

STC’s long-term issuer rating of A1 reflects its standalone creditworthiness as expressed by a BCA of a1, combined with GRI assumptions of ‘high’ level of interdependence between the government and STC and a ‘strong’ likelihood of extraordinary support being provided to STC from the government if ever required.

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