S&P Global Ratings has introduced a new credit rating scale--the Kingdom of Saudi Arabia national credit rating scale (KSA scale)--for the assignment of credit ratings to issuers domiciled in Saudi Arabia.

The KSA scale is designed for issuers based in Saudi Arabia and for local currency-denominated capital markets debt, bank loans, and shariah-compliant obligations issued in Saudi Arabia. It complements the existing global rating scale and may offer finer credit risk differentiation within Saudi Arabia for issuers, counterparties, intermediaries, investors, and insurers involved in Saudi Arabia's financial markets by providing independent opinions of relative creditworthiness.

Below, we answer some questions regarding the KSA scale and the rating process. For further information on our national and regional scale ratings generally, see "Guidance: Methodology For National And Regional Scale Credit Ratings."

Frequently Asked Questions

How will a KSA scale rating appear, and what are some of the characteristics of the KSA scale?

KSA scale ratings will feature the identifying prefix [ksa].

The KSA scale features both long- and short-term ratings. The highest long-term rating is 'ksaAAA' and the highest short-term rating is 'ksaA-1+'.

KSA scale ratings have their own rating definitions, which are similar to those for our other mapped national scale ratings (see table 1).

Table 1

Is there any difference between the analytical teams assigning global and national credit ratings?

No. The same analytical team will assign both global and national scale ratings. The team is composed of predominantly Gulf Cooperation Council (GCC)-based senior analysts with several years of experience in the GCC region across all sectors and asset classes.

How does S&P Global Ratings' experience and knowledge of local markets benefit market participants in Saudi Arabia?

S&P Global Ratings has extensive experience in rating transactions based in Saudi Arabia and the larger GCC region. We believe that market participants can gain valuable information about issuers and issues that have received our national scale ratings, since we created them specifically for the unique Saudi market.

What are some of the differences between a global scale rating and a KSA scale rating?

The primary difference is the scope. KSA scale ratings are designed to facilitate credit-risk comparisons among KSA-related issuers and issuances. By contrast, a global scale rating is based on credit-risk comparisons among issuers and issuances located all over the world. A KSA scale rating may allow for finer credit risk differentiation between some regional issuers and issuances.

Are the methodologies for assigning KSA scale ratings different from those for global scale ratings?

The methodologies for analyzing the underlying credit quality of issuers and issues are generally the same. However, these methodologies are supplemented by the application of "Methodology For National And Regional Scale Credit Ratings"--to transform the global scale analysis that our analysts have conducted into KSA national scale ratings, through mapping techniques.

Can an issuer be assigned both KSA scale and global scale ratings?

Yes. We can assign both KSA scale and global scale ratings to issuers and issues, although the KSA scale is designed to facilitate comparisons of KSA issuers and KSA currency-denominated debt issues. We also maintain a GCC rating scale, which can include KSA-domiciled issuers. The GCC scale remains in effect, and issuers can be assigned a GCC rating in addition to any KSA or global scale rating.

Are KSA regional ratings comparable to other S&P Global regional scale ratings?

No. Each regional rating scale and national rating scale is specific to the relevant regional or national market and addresses the credit risks solely in that market.

Why are KSA scale ratings and the KSA scale being introduced?

To finance Vision 2030, Saudi Arabia's plan to transform and diversify its economy and grow its private sector, authorities aim to deepen the Kingdom's capital markets. Given this initiative, we are seeing increased activity and investor interest in Saudi Arabia's local currency debt markets.

Some of the authorities' proposals include allowing nonresident foreigners to invest directly in listed and non-listed debt instruments, implementing a primary dealer system for enhanced risk management, and revising issuance fees.

Importantly, since 2017 the Kingdom has launched a monthly local currency sukuk issuance program, building a liquid local currency government bond market and yield curve. As the Kingdom is developing the infrastructure for broader local market participation and foreign direct investment in its capital markets, our KSA scale may provide a helpful basis of comparison of local credits and enhance transparency between Saudi local currency issuances.

What is the current mapping for global scale ratings to KSA scale ratings?

Our KSA national scale ratings will leverage our global methodologies and apply mapping techniques to transform global scale analytical results into KSA national scale ratings (see table 2).

Table 2

How are mappings determined and what is the relationship to sovereign credit quality?

The mapping specifications are based on several factors, and we may adjust them from time to time based on emerging credit fundamentals in a country, in addition to sovereign credit quality trends based on our "Sovereign Rating Methodology."

The highest rating on a given national scale ('xxAAA') is usually aligned with a global scale rating that is at or toward the top of the distribution of global scale ratings assigned to issuers in that country. After we have established the mapping between the highest national scale credit rating and the global rating scale (the national scale "anchor point"), we then determine the rest of the mapping based on the levels between the anchor point and the bottom of the scale.

Given that the sovereign is often the strongest credit in a given country, it is common for the anchor point to be positioned at the relevant sovereign global scale rating level, though this does not have to be the case. Also, an anchor does not automatically have to change when a sovereign credit rating changes, although it often does.

How does the KSA scale differ for long- and short-term ratings?

Short-term ratings are assigned to instruments with a tenor of less than one year. Long-term ratings are assigned to debt instruments that mature a year or more from date of issuance.