APICORP maintains strong asset quality despite oil drop: Moody’s

Arab Petroleum Investments Corporation's (APICORP) asset quality and capital adequacy remain strong, despite the drop in global oil prices, Moody's Investors Services said in a recent report.

"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," says Steffen Dyck, a VP and 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," he added.

Moody's, which has an Aa3 stable rating on APICORP, said its 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.

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 specialized infrastructure fund, also located in the kingdom.

Moody's said 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.