DOHA: Arab Petroleum Investments Corporation’s (APICORP) asset quality and capital adequacy remain strong, despite the drop in global oil prices, announced Moody’s Investors Service.
APICORP is a multilateral development bank (MDB), wholly owned by the ten member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC). Qatar holds 10 percent share in the Dammam headquartered APICORP.
“While APICORP has a high concentration on the oil and gas sector, asset quality and capital adequacy have not been materially affected by the drop in global oil prices since mid-2014,” said Steffen Dyck, VP-Senior Analyst at Moody’s.
“APICORP has a good level of equity relative to its risk assets, and a portfolio consisting of high-quality investment assets.”
According to Moody’s, APICORP’s capital adequacy ratio (reported at 28.8 percent at year-end 2014) exceeds regulatory guidelines, specifically of the Central Bank of Bahrain (12 percent), where the corporation maintains a wholesale banking branch.
Relatively low leverage contributes to APICORP’s high intrinsic financial strength, says Moody’s. APICORP also benefits from its de facto preferred creditor status and strong shareholder support.
APICORP’s main challenges, in Moody’s view, are its high geographic concentration in the Middle East region and sector concentration in the energy sector. However, it is continuing efforts to diversify its investments.
In 2014, APICORP further expanded its footprint in the midstream and downstream sectors of its member countries’ energy industry by acquiring a 28.3 percent stake in Dubai-headquartered National Petroleum Services (NPS).
It also made its first investment in the power sector via a co-investment with Saudi Arabia-based ACWA Power, and contributed to Powervest Fund, a Shariah-compliant specialised infrastructure fund, also located in Saudi Arabia.
The corporation strongly relies on wholesale deposits, weighing on Moody’s assessment of its liquidity. Efforts to diversify its funding sources are ongoing.
Moody’s notes that APICORP faces a challenging operating environment given political turmoil in a number of member countries, and geopolitical risks have become more prominent, posing a credit-challenge.
APICORP has a strong track record of profitability that has bolstered the capital base over time. A rise in impairments and lower net interest income led to a 6.3 percent decline in net income in 2014, ending four successive years of record profits. However, APICORP’s total income continued to climb for the third year in a row. While efforts to diversify its funding sources are ongoing, 2014 has witnessed a sharp increase in the short-term maturity gap. The degree to which the Corporation continues to be reliant on wholesale deposits adversely affects our assessment of its liquidity.
The sharp drop in global oil prices since mid-2014 poses a credit challenge, given the Corporation’s concentration on the oil and gas sector. Although asset quality or capital adequacy have not been materially impacted, an improvement in the operating environment would be credit positive. Since 2011, APICORP has faced a challenging operating environment given political turmoil in a number of member countries. In addition, geopolitical risks — notably those related to armed conflict — have become more prominent and currently constrain our assessment of the overall rating.
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