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Fitch Affirms Ras Al Khaimah at 'A'; Outlook Stable
May 15, 2015 / 8:07 PM / 2 years ago

Fitch Affirms Ras Al Khaimah at 'A'; Outlook Stable

(The following statement was released by the rating agency) LONDON, May 15 (Fitch) Fitch Ratings has affirmed Ras Al Khaimah's (RAK) Long-term foreign and local currency Issuer Default Rating (IDRs) at 'A' with Stable Outlooks. The issue ratings on RAK Capital's senior unsecured foreign currency bonds have also been affirmed at 'A'. The Short-term foreign currency IDR has been affirmed at 'F1'. The United Arab Emirates (UAE) Country Ceiling has been affirmed at 'AA+', this Ceiling applies to Ras al Khaimah and Abu Dhabi. KEY RATING DRIVERS The ratings balance the benefits of RAK's membership of the UAE, its low debt and generally solid fiscal performance against weaknesses in data quality and the macro policy environment. RAK is the fourth-largest emirate in the UAE federation and its rating derives substantial support from this membership. RAK shares the UAE monetary and exchange-rate system with a credible US dollar peg and absence of exchange controls. The UAE Country Ceiling of 'AA+' benefits from Abu Dhabi's (AA/Stable) strong external finances. RAK has no need for foreign exchange reserves and its rating is not constrained by external factors. RAK's public finances also benefit substantially from federal government (FG) support. Most basic public services and infrastructure are provided directly by the FG, relieving RAK's budget of many of the spending obligations of a typical sovereign. We do not factor potential exceptional support from the FG into the ratings. The sharp fall in oil prices has little direct impact on RAK's sovereign credit profile. Oil and primarily gas account for around 5% of GDP and oil is not exported. Nonetheless, RAK's trading partners in the GCC face headwinds from the sharp fall in oil prices. Fitch expects construction spending in the region to moderate but for demand for RAK's exports of construction materials - a mainstay of the economy - to remain firm. Arrivals from Russia, the third-largest source of tourists, may be impacted by the fall in the rouble against the dirham. RAK generally records a budget surplus, with the 2014 general government surplus widening to 3.4% of GDP as revenues picked up and spending fell after the closure of the national airline in 2013. A small deficit is expected in 2015 due to exceptional capital spending, which will boost capacity in the construction materials sector. A normalisation of capital spending is forecast to return the budget to surplus in 2016. Debt-to-GDP is less than half of the peer median, at around 20% of GDP, and is forecast to stay around this level. A USD1bn Sukuk issued in March 2015 was used to extend the maturity profile, consolidate existing debts and pre-finance a 2016 maturity. Debt management has improved and government guarantees on SOE borrowing are being phased out gradually. Prospects for real GDP growth are healthy. Tourist arrivals were up sharply in 2014 due to new hotels opening and other sectors are benefiting from the growth momentum in neighbouring Dubai and elsewhere in the GCC. Fitch expects real GDP growth to slow from around 6.5% in 2014 to 4%-5% over 2015 and 2016 owing to the slightly weaker external environment. Inflation has picked up due to higher rents and is forecast to rise above the peer median, at 4% in 2015 and 4.2% in 2016. Institutional weaknesses continue to constrain the rating. The availability of data in RAK is weaker than most Fitch-rated sovereigns. RAK's data quality is partly constrained by inadequacies at the FG level. National accounts are particularly weak, with no real GDP data. Balance of payments and monetary data are only compiled for the UAE in aggregate. Fiscal data provision in RAK is adequate and public-sector wide. The government's Investment and Development Office controls SOE borrowing. Like other sovereigns in the region, voice and accountability and institutional checks on the executive are also weak compared with peers. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. The main factors that, individually or collectively, could lead to positive rating action are: - Strengthened structural fundamentals, and in particular improved data availability and quality to better track the economy and the development programme. The main factors that, individually or collectively, could lead to negative rating action are: - A weakening in public finances prompted by large increases in current spending, if sustained for a prolonged period, or a materialisation of potential contingent liabilities, would bring downward rating pressure. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions: - The current political and financial relationships linking individual emirates within the UAE federal system are assumed to be maintained. In particular, no weakening of support from the FG and Abu Dhabi for the smaller emirates is envisaged. - No challenge to the rule of the royal family or the current succession. - RAK is in a volatile region. Existing tensions and conflicts are assumed to continue but not materially worsen. Fitch assumes that regional geopolitical conflicts will not impact directly on RAK or on its ability to trade. Contact: Primary Analyst Paul Gamble Director +44 20 3530 1623 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Christopher Findlay Analyst +44 20 3530 1342 Committee Chairperson Charles Seville Senior Director +1 212 908 0277 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 28 August 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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