EM CEEMEA CREDIT
- SECO secondary curve has tightened some 7-12bp in the mid part of the curve since Moody’s upgrade as part of a review of Saudi Arabia’s government related institutions back in November (see chart below). This is roughly in line with curve moves by comparables PIFKSA and ARAMCO. We see current secondary spreads as reflective of the credit story.
- With limited information available as per the mandate announcement, our fair value considerations take into account the signal from the granular seasoned curve over the interpolated theoretical curve, suggesting FV 5Y @ z+95bp and FV 10Y@ z+120bp. We see little, if any, NIP for the proposed green Sukuk structure tenors, adding 4bp of curve extension vs seasoned benchmarks 29s and 34s charting @ z+91bp and z+116bp, respectively.
Credit metrics for Saudi’s vertically integrated utility champion (owned c.74% by PIFKSA and c.7% by ARAMCO) reflect well on its on-going role in sustaining economic expansion for the Kingdom. As last reported, revenues for 3Q24 @ SAR28.32bn indicated a strong increase of +19% YoY on the back of regulatory changes and a growing regulated asset base, contributing a further boost to the 9M24 @ SAR66.55bn, +17% YoY. Profitability remained strong with adj net profit +19.8% YoY @ SAR4.69bn. EBITDA margin @ 47.3% was marginally lower YoY with EBITDA @ SAR13.38bn (+8.3% YoY). CAPEX stood @ SAR14.65bn in 3Q24, +3.4% YoY. This brought 9M24 CAPEX to SAR39.70bn, +34.2% supportive of strategic investments in grid infrastructure.
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