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S&P affirms RAK’s ‘A/A-1’ ratings

April 18, 2012

Ratings affirmed on continued growth and debt reduction

By Staff

Published Wednesday, December 07, 2011

RAK citizens are relatively wealthy – GDP per capita is expected to be $21,897 in 2011 (FILE)

Global ratings agency Standard & Poor’s today affirmed its long- and short-term ‘A/A-1’ foreign and local currency sovereign credit ratings on the emirate of Ras Al Khaimah (RAK).

The outlook is stable. The transfer and convertibility assessment on RAK is ‘AA+’.

The affirmation reflects RAK’s membership of the United Arab Emirates (UAE), which S&P believes provides an anchor and potential support for political and economic stability. It also reflects sustained economic growth and government surpluses, which are strengthening RAK’s slight net creditor position.

“In our opinion, membership of the UAE benefits RAK’s economic and political stability, and the UAE would provide external support in situations of political, economic, or financial stress,” S&P said in a media statement.

“The financial capacity of the UAE and the larger emirates, in particular Abu Dhabi, would be ample to cover RAK’s modest liabilities. We estimate RAK’s total debt at about 24.1 per cent of GDP in 2011, including the debt of all publicly owned entities,” it said.

“In our view, RAK appears unlikely to require such support. We expect it to report a consolidated government surplus of 6 per cent of GDP in 2011 and a slight net asset position after offsetting liquid government assets,” S&P added.

“The predominance of RAK’s equity stakes in local companies, however, raises uncertainties over the valuation and liquidity of the portfolio in the event of domestic stress. The geographic focus and interdependence of RAK’s assets further heighten its exposure to concentration risk,” it said.

RAK citizens are relatively wealthy – GDP per capita is expected to be $21,897 in 2011, slightly above the median for ‘A’ rated sovereigns – supporting S&P’s ratings on the emirate.

“RAK is exposed to economic developments in the larger emirates and the region as a whole through their effect on demand for RAK's main industrial and mining products -- cement, aggregate, ceramics, and glass. We view this dependence as a constraint on the rating, but anticipate that demand from Abu Dhabi and the Gulf Cooperation Council (GCC) will remain relatively solid,” it said.

“The stable outlook reflects our view that the risks posed by geopolitical issues and RAK’s exposure to the economic fortunes of the larger emirates and the Gulf region are balanced by our expectation of the near-certainty of continued ongoing support from the UAE and the strong likelihood of extraordinary support from the federation (backed by Abu Dhabi),” the ratings agency said.

In S&P’s view, it could take negative rating action if it sees a significant deterioration in RAK’s economic or fiscal performance, relative to its expectations, or if economic or fiscal performance deteriorates in Abu Dhabi and it sees knock-on effects on RAK.

A positive rating action could follow an easing of regional geopolitical tensions, a sustained improvement in RAK’s public finances, or an improvement in Abu Dhabi’s creditworthiness, S&P said.