(apicorp) – aa3 positive arab petroleum investments corporation · 2020-03-02 · (apicorp) –...

SOVEREIGN AND SUPRANATIONAL

ISSUER IN-DEPTH25 October 2018

RATINGS

APICORPRating Outlook

Long-term Issuer Aa3 POS

Short-term Issuer P-1 --

TABLE OF CONTENTSOVERVIEW AND OUTLOOK 1Organizational structure and strategy 2CREDIT PROFILE 5Capital adequacy: Very High 5Liquidity: High 10Strength of member support: VeryHigh 14Rating range 16Comparatives 17DATA AND REFERENCES 18

Contacts

Alexander Perjessy +971.4.237.9548VP-Senior [email protected]

Eugeniu Croitor +971.4.237.9574Associate [email protected]

Steffen Dyck +49.69.70730.942VP-Sr Credit [email protected]

Matt Robinson +44.20.7772.5635Associate Managing [email protected]

Marie Diron +65.6398.8310MD-Sovereign [email protected]

Arab Petroleum Investments Corporation(APICORP) – Aa3 positiveAnnual credit analysis

OVERVIEW AND OUTLOOKThe credit strengths of APICORP (Aa3 positive) include its robust capital adequacy, a high-quality asset portfolio, de facto preferred creditor status and very strong shareholder support– APICORP is wholly owned by the 10 member states of the Organization of Arab PetroleumExporting Countries (OAPEC). APICORP's relatively low leverage also contributes to thecorporation's high intrinsic financial strength, while the increase in callable capital in 2016underlines shareholder support.

By contrast, APICORP's credit challenges include a funding profile marked by an elevated,but falling share of short-term wholesale deposits. It also displays high geographic andsector concentrations relative to peers due to its mandate to finance petroleum projectsand industries that benefit its member states. However, efforts to diversify funding sourcesand lengthen borrowing maturities have eliminated APICORP's short-term maturity gapin 2017 and further reduced the corporation's reliance on wholesale deposits, improvingour assessment of its liquidity. In addition, although APICORP's operating environment hasimproved with the recovery in oil prices and stabilization of economic and security situationin several member countries, regional geopolitical risks remain elevated.

The positive outlook acknowledges the potential for a rating upgrade should APICORPextend its track record of (1) reducing its reliance on wholesale deposits (so that they do notmaterially contribute towards funding lending and direct investment operations); and (2)maintaining minimal balance sheet maturity mismatches, provided that it also retains itsstrong capital adequacy position and manageable leverage. Sustained credit metrics aroundcurrent levels over the next 12-18 months and further reduction in the concentration ofAPICORP’s lending portfolio over the longer term would support a higher rating level.

Given the positive outlook, a downgrade is unlikely, but downward pressure on the ratingscould be triggered by a combination of the following factors: (1) an extended period of verylow oil prices or a regional political shock that would significantly impair asset quality; (2)an indication that shareholders willingness to support APICORP was weakening; and (3) anincrease in liquidity risk or any funding pressures emerge as a result of a worsening of theoperating environment. Reversal in recent positive trends supporting APICORP’s asset andliquidity profile could prompt stabilization of the outlook at the current rating level.

This credit analysis elaborates on APICORP’s credit profile in terms of capital adequacy,liquidity and strength of member support, which are the three main analytical factors inMoody’s Supranational Rating Methodology.

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1143579

https://www.moodys.com/credit-ratings/Arab-Petroleum-Investments-Corp-APICORP-credit-rating-822112017

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1137185

MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Organizational structure and strategyAPICORP was established by OAPEC

APICORP was established as a multilateral development bank (MDB) on 23 November 1975 in accordance with an internationalagreement (“Establishing Agreement of APICORP”) signed and ratified by the 10 member states of the OAPEC.1

Exhibit 1 shows the distribution of fully paid-in capital, with the largest shareholders being the governments of Saudi Arabia (A1 stable),the United Arab Emirates (Aa2 stable) and Kuwait (Aa2 stable). APICORP’s headquarters are located in Dammam, Saudi Arabia, and ithas a wholesale banking branch in Manama, Bahrain (B2 negative).

Exhibit 1

APICORP's shareholding structureFully paid-in capital shares (as of 31 December 2017)

17%

17%

17%

15%

10%

10%

5%

3%

3%

3%

Saudi Arabia (A1)

Kuwait (Aa2)

UAE (Aa2)

Libya (NR)

Iraq (Caa1)

Qatar (Aa3)

Algeria (NR)

Bahrain (B2)

Egypt (B3)

Syria (NR)

AlgeriaLibya

Egypt

Kuwait

Saudi

Arabia

Iraq

Syria

UAE

Qatar

Bahrain

Sources: APICORP, Moody's Investors Service

APICORP is independent in its administration and in the performance of its activities. Unlike many other MDBs, it carries out itsoperations on a commercial basis, in accordance with its statutes. APICORP allocates 10% of annual net income to its statutory reserveand has the option of distributing the remainder as dividends to its shareholders. There is no dividend policy in place and dividenddistribution is mainly driven by surplus liquidity considerations. The corporation has not paid out dividends in seven out of last 11 years.Dividends were paid for the financial years 2007, 2011, 2015 and 2017.

The Establishing Agreement of APICORP explicitly grants the corporation privileges throughout OAPEC member countries. Theseprivileges include (1) the pledge and undertaking to support APICORP, jointly and severally; (2) the granting of rights and privileges ofnationality within any member country of OAPEC; (3) support for APICORP’s personnel in entry and residency throughout OAPEC;(4) exemption from payment of duties and all public and financial costs within OAPEC; (5) protection of assets against appropriation;(6) immunity from political risks; and (7) exemption from currency controls, including from convertibility and transfer restrictions.Membership in APICORP is explicitly limited to member countries of OAPEC, and any country that withdraws its membership fromOAPEC is obliged to withdraw from APICORP.

APICORP fulfills its mandate through lending and equity investment operations

APICORP’s mandate is to assist in financing petroleum projects and industries, and associated fields of activity of OAPEC members inorder to strengthen member states’ economic and financial potential. In order to achieve its purpose, APICORP makes direct equityinvestments in (15% of total assets as of year-end 2017) and extends debt financing (syndicated and direct loans, 48% of assets) tolocal, regional, and international entities in the energy and petrochemical sectors, as well as for trading activities of first-tier Arabexporters and global traders with creditworthy importing countries.

APICORP may conduct investments or financing proposals located outside the Arab region if it sees potential association with theinterest and development of the wider energy industry in the Arab region. The rest of the assets consist of cash and cash equivalents,bank deposits, property and equipment, and are invested in liquid instruments. APICORP also provides advisory services related to oiland gas finance and project development, and publishes macro-economic research with a focus on the oil and gas sector.

2 25 October 2018 Arab Petroleum Investments Corporation (APICORP) – Aa3 positive: Annual credit analysis

https://www.moodys.com/credit-ratings/Saudi-Arabia-Government-of-credit-rating-660260?emsk=2&isMaturityNotDebt=0&isWithDrawnIncluded=0&emvalue=Saudi%20Arabia

https://www.moodys.com/credit-ratings/United-Arab-Emirates-Government-of-credit-rating-600018601

https://www.moodys.com/credit-ratings/Kuwait-Government-of-credit-rating-441815

https://www.moodys.com/credit-ratings/Bahrain-Government-of-credit-rating-600018600


APICORP’s development mandate and its multilateral shareholding structure are typical of most MDBs. But it differs from manyother highly rated MDBs in that it fulfills its mandate by investing in the private sector, although a significant portion of its assetsis indirectly associated with governments, through government-owned entities or through government guarantees. We thereforeconsider APICORP’s business model slightly more vulnerable than those of most other MDBs, whose assets are largely characterizedby direct sovereign exposure. The high concentration of assets in the oil and gas sector, in accordance with the corporation's mandate,also differentiates APICORP with some other MDBs.

In the context of heightened country risk in the Middle East and North Africa, the corporation’s strategy for its project and tradefinance loans has been to maintain the current volume and contain the average maturity of its loan portfolio, while shifting focus toadvisory services and trade and commodity finance, with a focus on the Gulf Cooperation Council (GCC) countries.

In line with its strategy for 2014-18, APICORP has been targeting moderate loan growth and strengthening of its well-established co-financing relationships with other MDBs active in the region, including the European Investment Bank (EIB, Aaa stable), InternationalFinance Corporation (IFC, Aaa stable), the Islamic Development Bank (IsDB, Aaa stable), the European Bank for Reconstruction andDevelopment (EBRD, Aaa stable), and the African Development Bank (Aaa stable).

Regarding its equity operations, APICORP’s strategy is to grow and diversify investments. Compared to its 2012 level of $318million, equity investments more than doubled in 2013, to $822 million, although most of this increase was the result of portfoliorevaluation. Equity investments continued to rise further, reaching $954 million in 2017 or approximately 32% of net loan operations.Consequently, the corporation has added to its personnel to handle the increased volume. It also usually partners with publicinstitutions and aims at occupying at least one seat on the board of the investee, although with a planned exit strategy.

APICORP continues to diversify its investments across regions and sectors, following a selective investment approach. In 2016, thecorporation acquired a 35% stake in Ashtead Technology (unrated), a leading independent provider of sub-sea equipment and servicesto the offshore oil and gas industry with operations in the UK (Aa2 stable), Houston (Aa3 stable) and Singapore (Aaa stable), and a30% share in Bahrain's largest cement producer Falcon Cement Company (FCC, unrated). Furthermore, in 2017, APICORP entered intoa partnership with Goldman Sachs (A3 stable) for the creation of a $500 million managed account investment vehicle. This partnershipvehicle is aimed at acquiring private equity investments in a diversified global portfolio of energy assets. Also during 2017, APICORPmade an acquisition of a stake in the Shuqaiq Independent Water & Power Project in Saudi Arabia, a major brownfield desalination andpower generation plant located on the Red Sea coast.

As of year-end 2017, APICORP’s largest equity holding was Saudi European Petrochemical Company (Ibn Zahr), a polypropylenemanufacturer majority-owned by Saudi Basic Industries Corporation (SABIC, A1 stable), at a book value of $461.4 million, or 42% of allthe corporation’s gross equity investments (see Exhibit 2).


https://www.moodys.com/credit-ratings/European-Investment-Bank-credit-rating-270400

https://www.moodys.com/credit-ratings/International-Finance-Corporation-credit-rating-2391

https://www.moodys.com/credit-ratings/International-Finance-Corporation-credit-rating-2391

https://www.moodys.com/credit-ratings/Islamic-Development-Bank-credit-rating-806783659

https://www.moodys.com/credit-ratings/European-Bank-for-Reconstruction-Devlpmnt-credit-rating-19620

https://www.moodys.com/credit-ratings/European-Bank-for-Reconstruction-Devlpmnt-credit-rating-19620

https://www.moodys.com/credit-ratings/African-Development-Bank-credit-rating-14050

https://www.moodys.com/credit-ratings/United-Kingdom-Government-of-credit-rating-788250

https://www.moodys.com/credit-ratings/Houston-City-of-TX-credit-rating-600026473

https://www.moodys.com/credit-ratings/Singapore-Government-of-credit-rating-680430

https://www.moodys.com/credit-ratings/Goldman-Sachs-Group-Inc-The-credit-rating-453900

https://www.moodys.com/credit-ratings/Saudi-Basic-Industries-Corporation-credit-rating-820019212


Exhibit 2

APICORP’s direct equity investments, as of 31 December 2017

Company name Domicile Value (US$ million)

Saudi European Petrochimical Company (IBN ZAHR) Saudi Arabia 461.4

Yanbu National Petrochimical Company (YANSAB) Saudi Arabia 116.6

Egyptian Methanex methanol Company (EMETHANEX) Egypt 112.9

National Petroleum Services (NPS) United Arab Emirates 110.6

Industrialization and Energy Services Company (TAQA) Saudi Arabia 99.2

Saudi Mechanical Industries (SMI) Saudi Arabia 46.6

APICORP GS Fund Cayman Islands 41.5

Misr Fertilizers Production Company (MOPCO) Egypt 37.0

Shuqaiq Water & Electricity Co. (SIWEC) Saudi Arabia 28.1

Falcon Cement Company (FCC) Bahrain 27.5

Ashtead Technology (ASHTEAD) Great Britain 14.3

Tankmed Tankage Mediterranee (TANKMED) Tunisia 5.2

Arab Drilling and Workover Company (ADWOC) Libya 2.9

International Finance Corporation (IFC) United States of America 2.5

Note: Yansab is the only listed company. Direct equity investments are measured at fair value, except in case of certain unlisted companies where reliable fair value measures are notavailable; those are carried at cost less impairment allowances (if any).APICORP sold its 29% equity investment in National Petroleum Services (NPS) in July 2018.Source: APICORP

Wholesale deposit operations position APICORP as a unique MDB

Unlike most MDBs, APICORP accepts wholesale deposits. The few other Moody’s-rated MDBs that take deposits – Corporacion Andinade Fomento (CAF, Aa3 stable), Central American Bank for Economic Integration (CABEI, A1 positive), Islamic Corporation for theDevelopment of Private Sector (ICD, Aa3 RUR-), and Fondo Latinoamericano de Reservas (FLAR, Aa2 stable) – take deposits primarilyfrom shareholders, and they do not use the deposits as a source of funding for their banking operations.

APICORP’s business model differs from other MDBs, while sharing some characteristics with commercial banks in that it uses wholesaledeposits to fund treasury operations for profit and liquidity purposes. Until the end of 2016, APICORP also used wholesale deposits tofund a small portion of its core investment operations (around 10%).

During 1998-2005, deposits from banks accounted for an average 65% of the corporation's funding source, with term financing loanscomprising the remainder. However, in 2006, APICORP started diversifying its deposit client base with the opening of bank branch inBahrain, operating under a Conventional Wholesale Bank License granted by the Central Bank of Bahrain (CBB). The branch is governedby the regulations of the CBB, but like other offshore banks operating in Bahrain, it does not have access to central bank liquidityfacilities. The purpose of the branch is to complement the treasury and capital market activities of the corporation and provide bankingfacilities – predominantly letters-of-credit – to clients.

At the end of 2017, deposits from private sector corporates and government-related entities accounted for 24.4% of APICORP's totalliabilities, down from 36.9% in 2015. Deposits from banks amounted to 7.7% of total liabilities, up from 4.6% in 2015. These sharesare in contrast with longer-term trends, where the share of corporate and GRE deposits has risen significantly, while the proportion ofdeposits from banks has shrunk.


https://www.moodys.com/credit-ratings/Corporacion-Andina-de-Fomento-credit-rating-600010751

https://www.moodys.com/credit-ratings/Corporacion-Andina-de-Fomento-credit-rating-600010751

https://www.moodys.com/credit-ratings/Central-American-Bk-for-Economic-Integration-credit-rating-600051372

https://www.moodys.com/credit-ratings/Islamic-Corp-for-the-Dev-of-the-Priv-Sec-credit-rating-824318091

https://www.moodys.com/credit-ratings/Islamic-Corp-for-the-Dev-of-the-Priv-Sec-credit-rating-824318091

https://www.moodys.com/credit-ratings/Fondo-Latinoamericano-de-Reservas-credit-rating-600063339


CREDIT PROFILEOur determination of a supranational’s rating is based on three rating factors: capital adequacy, liquidity and strength of membersupport. For Multilateral Development Banks, the first two factors combine to form the assessment of intrinsic financial strength,which provides a preliminary rating range. The strength of member support can provide uplift to the preliminary rating range. For moreinformation please see our Supranational Rating Methodology.

Capital adequacy: Very HighStrong capital position and very low leverage

Scale

+ -

Very LowVery High High Medium Low

Capital adequacy assesses the solvency of an institution. The capital adequacy assessment considers the availability of capital to

cover assets in light of their inherent credit risks, the degree to which the institution is leveraged and the risk that these assets

could result in capital losses.

Factor 1

Our assessment of capital adequacy measures an MDB’s capacity to absorb credit or market losses stemming from its operations, andthus preserve its ability to repay debt holders. MDBs hold capital as a buffer against potential credit losses as a consequence of theirlending and investment operations in sectors or regions that are naturally risky, in line with their mandates. In addition, most MDBs(including APICORP) do not have access to central bank liquidity facilities, given their supranational status. Hence, MDBs typically havesignificantly higher levels of capital adequacy than similarly rated commercial banks.

High levels of usable equity and relatively low leverage support capital adequacy

The capital adequacy ratio we use in our analysis of MDBs is the asset coverage ratio (ACR), which is the ratio of usable equity2 tothe sum of loans, equity operations, and risk-weighted treasury assets. As of 2017, APICORP is in line with its peer group3 median,with an ACR of 50.5%. APICORP’s ACR recovered last year after it fell slightly in 2016, the first decline since 2008, on account of thecorporation's accelerated expansion of loan operations (see Exhibit 3), which increased by 17.6% in 2016. At the same time, its leverageratio has also improved slightly in 2017. The institution’s debt-to-usable equity stood at 124% in 2017 (see Exhibit 4), somewhat lowerthan the median for Aa-rated peers (151%).

Exhibit 3

Asset coverage ratio recovered after 2016%

Exhibit 4

Asset coverage and leverage ratios are broadly in line with similarlyrated peersYear-end 2017, %

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Assets Coverage Ratio (ACR) Debt / Usable Equity

ACR: Usable Equity / (Gross Loans+Equity+Expected Loss on Liquid Assets)Source: APICORP, Moody's Investors Service

0

50

100

150

200

250

300

GIC(A2/STA)

IIC(Aa1/STA)

CDB(Aa1/STA)

APICORP(Aa3/POS)

Aa Median CABEI(A1/POS)

CAF(Aa3/STA)

Assets Coverage Ratio (ACR) Debt / Usable Equity

(Debt+Deposits)/Usable Equity

Source: Respective Financial Statements, Moody's Investors Service




Nevertheless, as is our common practice for other deposit-taking MDBs, this ratio excludes deposits, which constitute a significantsource of funding for APICORP (33% of total liabilities in 2017). If we were to include deposits in total debt, APICORP’s leverage ratiowould reach around 187% at the end of 2017, closer to the (unadjusted) leverage ratio for CAF and CABEI.

APICORP calculates its capital adequacy ratio (Tier 1 + Tier 2 Capital/Total Risk-Weighted Exposure) at 29.8% as of June 2018, up from27.7% at year-end 2017 and broadly in line with levels recorded in previous years. This ratio exceeds the Basel II and Central Bank ofBahrain guidelines of 8% and 12%, respectively. According to APICORP’s minimum capital adequacy guideline, the ratio should not fallbelow 20%.

APICORP’s capital position is also supported by the strong quality of its assets. Based on the corporation’s internal calculations, theweighted average credit rating of its loan book as well as its treasury asset portfolio was in the “A” sphere in 2016 and 2017, slightlylower than the Aa-range for previous year. This breaks down into corporate finance gross loans,4 direct equity investments and treasuryassets (all with a weighted average rating in the A-range).5

The share of corporate loans in non-investment grade countries has increased to 20% in 2017, from 14.6% in 2016 and 9.5% in 2015due to new projects in Egypt (B3 positive), Azerbaijan (Ba2 stable) and Bahrain. However, the share of guaranteed loans has increasedto almost 30.5% in 2017 from around 25% in 2015, most of which are guaranteed by governments and government-related entities.As of end-2017, 46% of the guarantees are provided by government-related entities, while 28.6% are provided by government. The restare guaranteed by private sector third-party entities – in many cases parent companies.

Additionally, 5% of loans were insured at the end of 2017 against political risk in the countries outside the membership group (e.g.,Pakistan (B3 negative), Azerbaijan and Vietnam (Ba3 stable)) and Egypt. The share of insured loans rose to 7% in the first half of 2018.

Asset performance improved significantly

Our assessment of strong asset performance reflects the relatively high quality of APICORP’s asset portfolio combined with thesignificant decline in nonperforming loans (NPLs) as a share of total gross loans after the defaulted loans due from companies held bythe government of Iraq (Caa1 stable) were settled in January 2018.

At year-end 2017, gross NPLs represented 2.05% of gross corporate finance loans, in line with the 2016 value. The ratio has come downfrom 2.4% in 2014 as some loans had been written off. The corporation’s practice has been to remove a loan from NPL status once alllate payments have been settled.

While APICORP’s seven-year average NPL ratio is higher than for its peer group (see Exhibit 5), we expect it to decline towards themedian in the coming years.

Exhibit 5

APICORP NPL ratio continues to exceed those of its peers% of gross loans, 2017

0.0 0.5 1.0 1.5 2.0 2.5

CABEI (A1/POS)

CDB (Aa1/STA)

CAF (Aa3/STA)

IIC (Aa1/STA)

APICORP (Aa3/POS)

H1 2018 2017 7-year average

Sources: Respective financial statements, Moody's Investors Service


https://www.moodys.com/credit-ratings/Egypt-Government-of-credit-rating-258330

https://www.moodys.com/credit-ratings/Azerbaijan-Government-of-credit-rating-806356890

https://www.moodys.com/credit-ratings/Pakistan-Government-of-credit-rating-600014774

https://www.moodys.com/credit-ratings/Vietnam-Government-of-credit-rating-600023790

https://www.moodys.com/credit-ratings/Iraq-Government-of-credit-rating-806356878


APICORP had planned to write-off its NPLs from Iraq’s Ministry of Oil ($51.8 million), but has not done so as the corporation expectedto recover at least part of total amount. In January 2018, the Iraqi NPLs were fully settled and, assuming no new NPL entries during theremainder of this year, the NPL ratio will reduce to 0.4% of total corporate finance loans by the end of 2018, which will be in line withthe peer group. The remaining NPLs will include only loans granted to a Libyan private entity amounting to $11.8 million.

APICORP’s relatively weaker asset performance in its corporate finance loan book reflects, in part, the challenging geopoliticalenvironment in which it operates, especially the extraordinarily unstable political and security situation in Iraq (since its invasion ofKuwait in 1990 that was followed by the 1991 Gulf War, international sanctions, US/UK invasion, occupation and then insurgenciesand the civil wars up until now) and Libya (since the start of the Arab Spring in 2011). It also reflects the fact that APICORP has neverrestructured or reprofiled any of its loans. However, while APICORP’s relative position is weak, the absolute size of NPLs remains fairlysmall and stable, and is fully provisioned, mitigating any corresponding credit concern. Specific provisions were increased in 2014, inorder to cover geopolitical uncertainties in Iraq and Libya (unrated).

APICORP’s de facto preferred creditor status on its public-sector backed lending will help to keep NPLs at a moderate and manageablelevel, although it does not eliminate credit losses. Given that almost 75% of loans as of end-2017 are to government-related entities– up from 68% in 2013 – preferred creditor status has the potential to boost the performance of a significant portion of its exposures.Although preferred creditor status is generally not incorporated into APICORP's documentation, this is common practice among MDBs.

According to Articles 6 & 12 of the Establishing Agreement, the corporation must “preserve and protect APICORP’s assets, rights andprivileges of nationality, as well as its interests [held] internationally by its members.” Article 15 grants APICORP preferential access toforeign exchange in the event of a country’s foreign-exchange crisis.

Consistent with these preferences, APICORP’s loans are exempt from country risk provisioning when applicable, and its loans havenever been included in general country debt rescheduling. APICORP has only once been involved in a Paris Club rescheduling6 (Algeriain 1995) and it subsequently recovered 100% of its outstanding loan balance. Similarly, APICORP has never been subject to mandatorynew money obligations under any country debt rescheduling. Examples of this include Paris Club rescheduling and debt-forgivenessof Iraqi sovereign obligations in 2003: APICORP’s outstanding loans to government-related entities were not included in any of itsprovisions.

Concentration of assets has potential to impact capital adequacy, although diversification is ongoing

Given its mandate to finance energy-related projects mainly in OAPEC member states, APICORP’s asset portfolio is inevitablyconcentrated in the energy sector and in the Middle East region. This concentration is not atypical for regional MDBs. APICORP’sconcentration based on its top five country exposures is high, but not inconsistent with its peers, with the exception of the IIC whichhas a larger regional scope than the others. However, APICORP’s assets are concentrated even within the country and sectoral buckets,with a particularly high geographic concentration in Saudi Arabia and Qatar (Aa3 stable), accounting for 51% of loans, an additional14% in UAE, and in hydrocarbon-related7 projects (around 60% of loans).

We also note that APICORP’s portfolio of treasury investments at end-2017 had significant exposure to members either directlythrough government bonds or indirectly through state-owned entities with over 60% of fixed income investments in GCCcountries. While these instruments tend to be highly rated, investing treasury assets in members further compounds the geographicconcentration of assets.

Having said that, APICORP is making progress in diversifying its assets portfolio across regions and sectors (see Exhibit 6). With theacquisition of the UK-based Ashtead Technology in 2016, the corporation increased its exposure to regions outside the GCC. In 2017,APICORP entered into partnership with Goldman Sachs for the creation of a $500 million managed account investment vehicle toacquire private equity investments in a diversified and global portfolio of energy assets. Through this vehicle, the corporation has madeits first US investment by acquiring a stake in the largest North American focused pressure pumping services provide. At the same time,APICORP increased its exposure to the US through higher investment in US T-bills as well as direct equity investment. The share offixed income investment in US assets increased to 27% as of end June 2018 from just over 2% in June 2016.


https://www.moodys.com/credit-ratings/Qatar-Government-of-credit-rating-600048045


Exhibit 6

Concentration of the loan book decreasingHerfindahl–Hirschman Index (HHI)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Region HHI Country HHI Industry HHI

2014 2015 2016 2017

Source: APICORP, Moody's Investors Service

Track record of profitability directly supports capital adequacy

Despite having a development mandate, APICORP, unlike many other MDBs, operates on a commercial basis, and, at times, paysdividends to shareholders. We typically assess the profitability of an MDB in the context of the contribution that it makes to building ordepleting the institution’s capital base. This analysis is particularly relevant in the case of APICORP, where the board decided to foregodividend distributions in seven out of the past 11 years to strengthen the corporation’s balance sheet.

APICORP has a strong track record of profitability that has bolstered the capital base over time. With the pick-up in oil prices, netincome increased to $103.6 million in 2017 from $93.4 million one year earlier. The results for the half of 2018 show a further increaseof net income to $150.2 million,8 driven by a 40% increase in net interest income, higher dividend income and realized gain from thesale of its equity share in the National Petroleum Services (realized gain of $86.7 million). General administrative expenses have beenkept broadly stable since 2013, when they increased by around 25% to $38.6 million.

Exhibit 7

Reduced correlation between oil prices and APICORP’s net income

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Net income, $ million Oil prices, $/b


Return on assets for 2017 was 1.7%, up from 1.5% in 2016. In the first six months of 2018 the ratio improved again to 2.2%. Return onequity has been very strong, with an average of 6.6% since 2007 and year-end 2017 results of 5%.

Challenging operating environment since 2014 has had no material impact on asset quality and capital adequacy

In the recent past, APICORP has faced new challenges in its operating environment given political unrest in a number of membercountries and the subsequent deterioration in their respective sovereign risk profiles. However, the corporation does not have anyloan exposure to Syria (unrated), while its loan portfolio in Libya and Egypt represents an aggregate 8.1% of total country exposure.For its investments in these countries, APICORP has fully provisioned for expected losses where applicable, preempting a significant



deterioration on the corporation’s financial performance. The diplomatic dispute between Qatar and some of its GCC neighbors sincemid-2017 has not had a material impact on APICORP's asset quality and overall operations.

Developments in global energy markets, which have been characterized by volatile global benchmark oil prices in recent years, posea potential risk to APICORP’s credit profile given the sectoral concentration of its assets in petroleum-related projects. Althoughincome from the contracted loans has not been affected by this volatility, fluctuations in energy prices did impact dividend paymentsfrom direct equity investments and returns on fixed income securities issued by the oil producing sovereigns. As such, the ongoingdiversification of the investment portfolio as well as the treasury assets portfolio is credit positive.

While volatile oil and gas prices could potentially affect the debt-service capacity of energy related projects, the corporation seespotential positive impact from low oil prices on trade financing for net oil importers, and from advisory and financing opportunitiesrelated to debt restructuring and refinancing.

That said, an extended period of very low oil prices could put pressure on funding and liquidity conditions in the region where APICORPis operating in, particularly for oil exporters.



Liquidity: HighImproving maturity mismatch but deposits still account for a sizable share of funding

Scale

+ -

Low Very Low

A financial institution’s liquidity is important in determining its shock absorption capacity. We evaluate the extent to which liquid

assets cover debt service requirements and the stability of the institution’s access to funding.

Very High High Medium

Factor 2

Use of short-term wholesale deposit funding has led to balance sheet maturity mismatches…

The degree to which APICORP’s funding is reliant on wholesale deposits is unusual for an MDB. At end-2017, 32.7% of APICORP’s totalliabilities were short-term deposits from banks, corporates and entities directly owned or controlled by the member states. While thisshare has been steadily decreasing from 51.7% reported in 2013, within the small group of deposit-taking MDBs, APICORP remainsamong the most reliant on wholesale deposits (Exhibit 8).

APICORP uses short-term wholesale deposits to fund its sizeable treasury operations for the purposes of profit generation and liquidity.Up until the end of 2016, it also used wholesale deposits to fund a portion of its loan operations, but this is no longer the case (Exhibit9).

By contrast, 73.2% of APICORP’s assets were long term (remaining maturity over one year), with 32.3% of assets having aremaining maturity of five years or more. This balance sheet maturity mismatch is a challenge for the corporation and constrainscreditworthiness. Having said that, the corporation has managed to reduce the maturity mismatch significantly in recent years, withthe maturity gap (defined as short-term assets less short-term liabilities) declining to 3.7% of total assets as of end of June 2018 froman average of 20% between 2010 and 2017. Nevertheless, the APICORP’s balance sheet maturity mismatches is greater than its peers,and we therefore make negative adjustment to our liquidity score.

Exhibit 8

APICORP is among a small group of MDBs that take deposits

Deposits/Total Liabilities, end-2017

African Export-Import Bank (Afreximbank, Baa1/STA) 6.6%

Corporacion Andina de Fomento (CAF, Aa3/STA) 10.9%

Central American Bank for Economic Integration (CABEI, A1/POS) 15.2%

Arab Petroleum Investments Corporation (APICORP, Aa3/POS) 32.7%

Gulf Investment Corporation (A2/STA) 36.1%

Fondo Latinoamericano de Reservas (FLAR, Aa2/STA) 99.7%


We view wholesale deposits as a potentially volatile source of funding and vulnerable to market confidence, owing to their greaterconcentration and correlation to economic cycles relative to retail deposits.

Whereas we acknowledge that APICORP’s deposits exhibit some stability based on the corporation’s own definition of threeconsecutive years of renewal, APICORP’s overall funding profile is somewhat weaker than for its peers.

…which have been partly mitigated by stability of deposits and the new term financing programs

There are some mitigating factors to this mismatch: deposits from corporates and government-related entities (which accounted for68.3% of the deposit base in 2017) are relatively stable because they are mainly deposited by companies owned by member statesthrough their state-owned oil and gas companies, or other entities with ties to one or more member states. In addition, a significant



portion of these companies also have a loan or direct equity investment client relationship with APICORP, which presumably makesthem somewhat more stable than typical wholesale deposits, based on existing loan or equity relationships in place or a history ofregular renewal. Deposits from corporates have increased since the opening of the Bahrain branch in 2006, when they comprised only18% of total deposits.

We estimate that at the end of 2017, stable deposits – which we define as deposits with at least two consecutive years of renewal atthe same or higher level – were 64% of total deposits (Exhibit 10). These stable deposits include deposits from shareholders, whichamounted to $110.8 million or 8.3% of total deposits at year-end 2017. Indeed, despite significant transition and stress starting in 2011,Libya and Syria have not withdrawn their deposits. According to APICORP's own assessment, 76% of all deposits are “sticky”, meaningthat they are a reliable and dependable funding source available as and when needed.

Exhibit 9

Declining significance of wholesale deposits%

Exhibit 10

Share of stable deposits has increasedUS$ billion (% of total)

0

10

20

30

40

50

60

40

90

140

190

240

290

340

390

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Deposits / Treasury securities Deposits / Total assets (right)


25%

42% 47%47%

69%82%

70% 76%

37%

49%43%

47%

72%

52% 56% 64%

0.0

0.5

1.0

1.5

2.0

2.5

2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s

Stable Rest Sticky (APICORP classification)

Stable deposits are defined as deposits with at least two consecutive years of renewal atthe same or higher levelSource: APICORP, Moody's Investors Service

Over the past three years, efforts have focused on lengthening the average maturity of debt to mitigate the mismatches resulting fromthe short-term nature of deposits. As of end-2017, long-term funding – equity, term financing, bonds and shareholder deposits – madeup 90% of the corporation’s net funding requirements of around $3.5 billion.

In June 2015, APICORP established a $3 billion medium-term sukuk program (rated (P)Aa3), with the aim of further lengthening itsdebt maturity, which was tapped for the first time in October 2015 with a $500 million five-year sukuk issuance. In August 2016, thecorporation issued a SAR250 million ($66 million) three-year private sukuk bond, followed by the first Formosa bond on the Taiwanesemarket in September 2016 ($300 million with maturity of five years). In early October 2017, APICORP announced another five-yearFormosa bond and the Corporation re-tapped its existing medium-term sukuk program again in November 2017 with a $500 millionfive-year issuance. In March 2018, the institution accessed the offshore Chinese renminbi market with a CNH630 million ($100million) three-year bond. APICORP established a $3 billion Global Medium Term Note (GMTN) program, which it tapped with theissuance of $750 million five-year bond in September 2018.

Liquidity management consistent with business model, different from most MDBs

APICORP manages liquidity by grouping maturing assets and liabilities into four time buckets: up to three months, three months toone year, one to five years, and over five years. The associated assets and liabilities are matched (Exhibit 11) and the cumulative gapbetween the cash flows as a percentage of liabilities is the relevant ratio that is managed by APICORP. As a result of the corporation’sefforts to reduce the short-term maturity mismatch, the negative asset-liability gap of up to one year turned positive (6.5% ofliabilities) as of end-2017 with the value of assets exceeding the value of liabilities) from an average of -19.5% between 2010 and2016. As of end of June 2018, the cumulative mismatch had increased again, to -3.7%, but this was in anticipation of the $750 million



issuance in September, which is expected to return the 0-12 months asset-liability gap back to the positive territory by the end of theyear.

Exhibit 11

Maturity profile of assets and liabilities has improvedCumulative asset-liability maturity gaps, % of total liabilities

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

2010 2011 2012 2013 2014 2015 2016 2017 H1 2018

Up to 3 months Up to 1 year Up to 5 years

Maturity gap is defined as the difference between assets and liabilities at a given maturity.Sources: APICORP, Moody's Investors Service

Most MDBs do not have a maturity mismatch, and manage liquidity primarily through a policy dictating the holding of a minimumlevel of liquid assets, such that a certain number of forthcoming months’ of net cash outflow demands are covered. While APICORPmanagement does have such a policy, the methodology used for the calculations differs from other MDBs and as a result it is notmeaningful to make comparisons with its peers. There are several ratios that APICORP is using to manage liquidity risk. The LiquidityCoverage Ratio (LCR) measures total high quality liquid assets as percent of total net cash outflow over the next three months. Theratio fell in 2017 to 375% from 624% in June 2017. However, it increased in the first half of 2018 and reached 805% in June 2018.The second ratio is the Liquidity Asset Ratio (LAR), which measures total discounted liquid assets as percent of net cash requirementsfor the next 12 months. It has increased in 2017 to 124% from 68% in 2016 and exceeded the target of 100%. Furthermore, in 2017,the corporation added the Survival Horizon metric, which measures the number of months APICORP is able to fulfil all its paymentobligations under a stress scenario, which assumes loss of market access and a haircut up to 32% on treasury assets. As of end 2017,this ratio stood at close to 15 months, up from 9.9 months at end-June 2017 and minimum requirement of 9 months.

As shown in Exhibit 12, APICORP’s liquidity position is the weakest in its direct peer group when its deposits are incorporated intothe analysis as part of short-term debt. However, the exhibit also illustrates that even in the extremely unlikely event that APICORPloses market access for refinancing and is simultaneously challenged by a run on deposits, it will be able to cover its debt servicerequirements (including the outflow of all deposits) over the course of a full year.



Exhibit 12

If deposits are included, APICORP has the weakest debt-service coverage ratio in its peer group(Short-term debt + currently maturing long-term debt) / discounted liquid assets (end-2017)

0

10

20

30

40

50

60

70

CDB (Aa1/STA) IIC (Aa1/STA) CABEI (A1/POS) CAF (Aa3/STA) GIC (A2/STA) APICORP (Aa3/POS)

Base Ratio Including Short-Term Deposits in the Numerator


APICORP’s portfolio of treasury investments are entirely funded by short-term deposits. We do not consider the quality of theseinvestments to offset the risks to liquidity in full from the wholesale and short-term nature of the funding. That said, APICORP hasdiversified its treasury investment to include government securities of the G-7 countries9, which remain highly liquid even during timesof financial market turmoil. As of June 2018, APICORP had invested over 25% of its fixed income portfolio in US securities to improveits portfolio's quality and liquidity.

Exhibit 13

Treasury assets composition by country%

10.6 16.0

31.4 33.9

70.7

53.6 48.8 52.4

0

20

40

60

80

100

2015 2016 2017 2018H1

US, UK & EU Other Oman & Bahrain GCC ex-Bahrain & Oman




Strength of member support: Very HighVery strong shareholder base, reinforced by incremental capitalization from retained earnings

Scale

+ -

Contractual support primarily manifests itself in the callable capital pledge, which is a form of emergency support. Extraordinary

support is a function of shareholders’ ability and willingness to support the institution in ways other than callable capital. Strength

of member support can increase the preliminary rating range determined by combining factors 1 and 2 by as many as three

scores.

Very High High Medium Low Very Low

Factor 3

Additional callable capital underlines shareholder support

In May 2011, APICORP’s shareholders agreed to change the capital structure by introducing callable capital of $750 million, in additionto paid-in capital of $750 million. Callable capital is an unconditional and full-faith obligation of each member country to provideadditional capital within two months when called. Along with sustained strong financial performance, this led to the upgrade ofAPICORP’s rating to Aa3 from A1 in September 2012.10 In 2014, paid-in capital was increased to $1 billion, while the callable capitalwas decreased by the same amount to $500 million. However, in April 2016, the shareholders' $1 billion line of credit was replacedwith additional callable capital of $500 million which increased total callable capital to $1 billion. The introduction of callable capitaldemonstrates stronger support than the line of credit made available by shareholders in 2008.

As a result of the increase in capital, the callable capital coverage of the corporation’s debt stock has increased, putting contractualsupport at ”Medium” from “Low” in our methodological scorecard, with debt representing 4.5 times the amount of discounted callablecapital, lower than peers like CAF and CABEI.

Likelihood of extraordinary support demonstrated by high shareholder ratings, capital increases

The weighted median rating of APICORP’s shareholders was A1 as of end-2017 reflecting a strong ability to provide extraordinarysupport. In comparison, the corresponding indicators for peers were much lower, with CABEI at Ba2, CAF at Ba1, CDB at Ba1.

Of APICORP’s 10 member countries, seven are rated by Moody’s (United Arab Emirates – Aa2 stable, Kuwait – Aa2 stable, Qatar – Aa3stable, Saudi Arabia – A1 stable, Bahrain – B2 negative, Egypt – B3 positive, Iraq – Caa1 stable). The capital base is held primarily byinvestment-grade countries (61%) – although none are Aaa-rated – with the remainder held by non-investment-grade (16%) or non-rated countries (23%).

Moreover, the strategic importance of the energy sector to the OAPEC economies backs our view that APICORP benefits from a highpriority of support.

Very liberal terms in relation to callable capital

APICORP’s shareholders have explicitly committed to support the institution on a “joint and several” basis. Article 6 of the Articles ofAgreement states: “The Member States undertake, jointly and severally, to support the Corporation, protect it and embrace its causesin every way that ensures the protection of its rights and interests internationally and otherwise and undertake to facilitate all theactivities related to its objectives and to adopt all possible measures to that end.”

Although we do not regard the wording of this pledge as a full financial guarantee for creditors, it does indicate a stronger willingnessto support as compared to the pro rata wording of support pledges of other MDBs. Typically, each member’s fulfillment of the callablecapital obligation is independent of the action of the other shareholders.

While it is rare for an MDB to have shareholder support in this more collective form, the language in the Articles of Agreement isopen to interpretation and is not explicitly linked to callable capital. Hence, we monitor the capital adequacy ratios amended forconsideration of joint and several callable capital (i.e., including all callable capital because the highest-rated shareholder is rated Aa2).



At the same time, the key ratio we use in our analysis of contractual support—the callable capital coverage ratio—continues to includeonly the callable capital provided by those members rated Baa3 or higher.

Another unique feature of APICORP’s callable capital is that the conditions under which APICORP can request callable capital is notrestricted to debt service. Management can request callable capital in order to service debt, to expand development operations (whilemaintaining capital adequacy ratios), or to absorb losses from treasury or development-related assets. These very liberal callable capitalguidelines differ from many other MDBs, which can typically only request callable capital to service debt. Once requested, APICORP’scallable capital is expected to be paid in by members within two months.



Rating rangeCombining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporateexpectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical,meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicativerating range. For more information please see our Supranational Rating Methodology.

Exhibit 14

Supranational rating metrics: Arab Petroleum Investments Corporation

+ -

+ -

+ -

+ -Aa3

Aaa-Aa2



High Medium Low Very LowVery High

Very LowVery High High Medium Low

Capital Adequacy

How strong is the capital buffer?

How strong is the institutions' shock absorption capacity?

Sub-Factors: Position, Funding

Assigned Rating:

Strength of Member Support

Intrinsic Financial Strength

Sub-Factors: Capital Position, Leverage, Asset Performance

How strong is members' support of the institution?

Sub-Factors: Contractual Support, Extraordinary Support

Rating Range:

Liquidity

Source: Moody's Investors Service




ComparativesThis section compares credit relevant information regarding APICORP with other supranationals that we rate. It focuses on a comparison with supranationals within the same ratingrange and shows selected credit metrics and factor scores.

APICORP benefits from a solid capital position and relatively low leverage, placing the corporation’s capital adequacy in the same category as CAF and higher than CABEI, althoughCDB and IIC have stronger equity and asset quality. APICORP’s liquidity position is hampered by a relatively large level of short-term debt due to its reliance on deposits, which ispartially offset by a lower cost of funding than CDB or CAF. Finally, shareholder support is a key credit strength that places APICORP in a favorable position relative to peers, with ahigh median shareholder rating of A1 and the existence of callable capital.

Exhibit 15

Arab Petroleum Investments Corporation's key peers

Year APICORP CDB CAF IIC CABEI GIC Aa Median

Rating/Outlook Aa3/POS Aa1/STA Aa3/STA Aa1/STA A1/POS A2/STA --

Total Assets (US$ million) 2017 6,237 1,641 38,112 2,185 9,721 4,228 6,249

Factor 1 Very High Very High High Very High High Medium --

Usable Equity/Gross Loans Outstanding + Equity Operations (%)[1] 2017 51.5 85.2 46.2 143.5 41.2 121.8 51.5

Debt/Usable Equity (%)[1] 2017 124.4 76.9 206.0 44.8 203.8 30.1 150.6

Gross NPLs/Gross Loans Outstanding (%)[2] 2017 2.0 0.5 0.6 0.9 0.0 1.3 0.5

Factor 2 High Very High Very High Very High Very High Medium --

ST Debt + CMLTD/Liquid Assets (%)[3] 2017 7.1 2.0 36.1 1.7 28.7 29.0 26.1

Bond-Implied Ratings (Long-Term Average) 2011-2017 -- A1 A3 -- A3 Ba2 Aa3

Intrinsic Financial Strength (F1+F2) Very High Very High High Very High High Medium --

Factor 3 Very High Very High Low Medium Medium Low --

Total Debt/Discounted Callable Capital (%)[4] 2017 447.6 122.8 3134.1 -- 579.8 -- 122.8

Weighted Median Shareholder Rating (Year-End) 2017 A1 Ba1 Ba1 A3 Ba2 Aa3 A1

Rating Range (F1+F2+F3) Aaa-Aa2 Aaa-Aa2 Aa2-A1 Aaa-Aa2 Aa1-Aa3 A2-Baa1 --

Notes:[1] Usable equity is total shareholder's equity and excludes callable capital[2] Non performing loans[3] Short-term debt and currently maturing long-term debt[4] Callable capital pledge by members rated Baa3 or higher, discounted by Moody's 30-year expected loss rates associated with ratingsSources: Moody's Investors Service, respective MDB financial statements



DATA AND REFERENCESRating history

Exhibit 16

Arab Petroleum Investments Corporation[1]

long-term Short-term Outlook Senior Unsecured Date

Outlook changed -- -- Positive -- Oct-18

Rating upgraded Aa3 -- -- Aa3 Sep-12

Rating changed -- -- -- A1 Oct-10

Rating assigned -- -- -- (P)A1 Oct-10

Rating assigned A1 P-1 Stable -- Jun-10

Issuer rating

Notes: [1] Table excludes rating affirmations. Please visit the issuer page for APICORP for the full rating history.Source: Moody’s Investors Service


https://www.moodys.com/credit-ratings/Arab-Petroleum-Investments-Corp-APICORP-credit-rating-822112017


Annual statistics

Exhibit 17

Arab Petroleum Investments Corporation

2011 2012 2013 2014 2015 2016 2017

Balance Sheet, USD Thousands

Assets

Cash & Equivalents 661,717 809,473 570,776 982,912 995,068 838,575 525,124

Securities 794,491 952,170 1,183,464 1,181,092 1,068,980 1,203,518 1,631,520

Net Loans 2,803,489 2,897,046 2,923,135 2,690,803 2,510,060 2,951,598 2,965,028

Net Equity Investments 324,284 318,002 822,607 865,957 922,530 987,249 954,271

Other Assets 45,523 100,884 175,181 163,237 156,050 160,794 160,869

Total Assets 4,629,504 5,077,575 5,675,163 5,884,001 5,652,688 6,141,734 6,236,812

Liabilities

Borrowings 1,369,142 1,832,887 1,698,413 2,114,878 2,010,395 2,533,078 2,672,264

Other Liabilities 2,041,577 1,936,649 2,172,175 1,912,140 1,733,008 1,607,912 1,416,834

Total Liabilities 3,410,719 3,769,536 3,870,588 4,027,018 3,743,403 4,140,990 4,089,098

Equity

Subscribed Capital 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 2,000,000 2,000,000

Less: Callable Capital 750,000 750,000 750,000 500,000 500,000 1,000,000 1,000,000

Equals: Paid-In Capital 750,000 750,000 750,000 1,000,000 1,000,000 1,000,000 1,000,000

Retained Earnings (Accumulated Loss) 94,854 97,931 100,605 93,953 96,511 83,822 93,136

Reserves 373,931 460,108 953,970 763,030 812,774 916,922 1,054,578

Total Equity 1,218,785 1,308,039 1,804,575 1,856,983 1,909,285 2,000,744 2,147,714

Source: APICORP, Moody’s Investors Service

Exhibit 18


2011 2012 2013 2014 2015 2016 2017

Income Statement, USD Thousands

Net Interest Income 27,202 40,206 42,863 40,114 44,907 53,814 66,181

Interest Income 77,500 104,729 109,084 106,701 106,662 125,758 159,472

Interest Expense 50,298 64,523 66,221 66,587 61,755 71,944 93,291

Net Non-Interest Income 109,666 99,542 107,797 102,692 100,359 75,701 74,787

Net Commissions/Fees Income 1,224 1,076 2,935 1,460 1,218 734 643

Income from Equity Investments 96,411 71,624 71,218 86,530 85,883 54,251 37,312

Other Income 12,031 26,842 33,644 14,702 13,258 20,716 36,832

Other Operating Expenses 31,514 30,857 38,603 37,773 37,664 36,091 37,323

Administrative, General, Staff 31,514 30,857 38,603 37,773 37,664 36,091 37,323

Pre-Provision Income 105,354 108,891 112,057 105,033 107,602 93,424 103,645

Loan Loss Provisions (Release) 0 0 0 0 0 0 0

Net Income (Loss) 105,354 108,891 112,005 104,953 107,511 93,322 103,636




Exhibit 19


2011 2012 2013 2014 2015 2016 2017

Financial Ratios

Capital Adequacy, %

Usable Equity / (Loans + Equity) 36.5 38.0 45.8 48.8 52.0 47.7 51.5

Debt/Usable Equity 112.3 140.1 94.1 113.9 105.3 126.6 124.4

Allowance For Loan Losses / Gross NPLs 41.8 65.6 69.1 81.9 73.9 69.2 70.1

NPL Ratio: Non-Performing Loans / Gross Loans 3.3 2.3 2.3 2.4 2.4 2.1 2.0

Return On Average Assets 2.4 2.2 2.1 1.8 1.9 1.6 1.7

Interest Coverage Ratio (X) 3.1 2.7 2.7 2.6 2.7 2.3 2.1

Liquidity, %

St Debt + CMLTD / Liquid Assets 57.5 20.1 9.8 63.7 0.0 27.3 7.1

Bond-Implied Rating 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Liquid Assets / Total Debt 106.4 96.1 103.3 102.3 102.7 80.6 80.7

Liquid Assets / Total Assets 31.5 34.7 30.9 36.8 36.5 33.2 34.6

Strength of Member Support, %

Callable Capital (CC) of Baa3-Aaa Members/Total CC 64.0 64.0 64.0 64.0 64.0 61.0 61.0

Total Debt/Discounted Callable Capital 290.5 388.9 360.9 674.1 669.2 426.0 447.6

Weighted Median Shareholder Rating (Year-End) Aa3 Aa3 Aa3 Aa3 Aa3 A1 A1

2010 2011 2012 2013 2014 2015 2016

Financial Ratios

Capital Adequacy, %

Usable Equity / (Loans + Equity) 37.1 36.5 38.0 45.8 48.8 52.0 47.7

Debt/Usable Equity 117.3 112.3 140.1 94.1 113.9 105.3 126.6

Allowance For Loan Losses / Gross NPLs 34.8 41.8 65.6 69.1 81.9 73.9 69.2

NPL Ratio: Non-Performing Loans / Gross Loans 2.6 3.3 2.3 2.3 2.4 2.4 2.1

Return On Average Assets 2.3 2.4 2.2 2.1 1.8 1.9 1.6

Interest Coverage Ratio (X) 3.2 3.1 2.7 2.7 2.6 2.7 2.3

Liquidity, %

St Debt + CMLTD / Liquid Assets 30.1 57.5 20.1 9.8 63.7 0.0 27.3

Bond-Implied Rating 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Liquid Assets / Total Debt 101.5 106.4 96.1 103.3 102.3 102.7 80.6

Liquid Assets / Total Assets 31.5 31.5 34.7 30.9 36.8 36.5 33.2

Strength of Member Support, %

Callable Capital (CC) of Baa3-Aaa Members/Total CC - 64.0 64.0 64.0 64.0 64.0 61.0

Total Debt/Discounted Callable Capital - 290.5 388.9 360.9 674.1 669.2 426.0

Weighted Median Shareholder Rating (Year-End) Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 A1




Moody’s related publications

» Credit Opinion: Arab Petroleum Investments Corporation – Aa3 Positive: Update following the change in outlook to positive,rating affirmed, 18 October 2018

» Rating Action: Moody's changes outlook on APICORP to positive, affirms Aa3 rating, 19 October 2018

» Rating Action: Moody's assigns provisional (P)Aa3 rating to APICORP's proposed Global Medium-Term Note Programme, 27August 2018

» Rating Action: Moody's assigns provisional (P)Aa3 rating to APICORP's proposed Formosa bond, 5 October 2017

» Rating Action: Moody's affirms APICORP at Aa3; maintains stable outlook, 23 September 2016

» Rating Methodology: Multilateral Development Banks and Other Supranational Entities, 17 September 2018

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. Allresearch may not be available to all clients.

Related websites and information sources

» Sovereign and supranational risk group web page

» Sovereign and supranational rating list

» APICORP

MOODY’S has provided links or references to third party World Wide Websites or URLs (“Links or References”) solely for your convenience in locating related information and services.The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control.Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised onany third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services providedby any third party.




http://www.moodys.com/viewresearchdoc.aspx?docid=PR_390228&WT.mc_id=MDCAlerts_realtime~1d0f7e33-3b14-4a05-b827-4beb8bc5bc93

http://www.moodys.com/viewresearchdoc.aspx?docid=PR_387730&WT.mc_id=MDCAlerts_realtime~1d0f7e33-3b14-4a05-b827-4beb8bc5bc93

https://www.moodys.com/research/Moodys-assigns-provisional-PAa3-rating-to-APICORPs-proposed-Formosa-bond--PR_373492

https://www.moodys.com/research/Moodys-affirms-APICORP-at-Aa3-maintains-stable-outlook--PR_354063


https://www.moodys.com/researchandratings/market-segment/sovereign-supranational/-/005005/005005/-/-1/0/-/0/-/-/-/-1/-/-/-/en/global/pdf/-/rra

https://www.moodys.com/research/Sovereign-Supranational-Rating-List--PBC_186519

http://www.apicorp-arabia.com/


Endnotes1 The principal objective of the OAPEC Agreement is the development of regional cooperation in the petroleum industry. In pursuit of this objective, OAPEC

sponsored the creation of four companies: APICORP, the Arab Maritime Petroleum Transport Company, the Arab Shipbuilding and Repair Yard Company,and the Arab Petroleum Services Company.

2 Paid-in capital + reserves + retained earnings.

3 Caribbean Development Bank (CDB, Aa1); Corporacion Andina de Fomento (CAF, Aa3); Inter-American Investment Corporation (IIC, Aa1) and CentralAmerican Bank for Economic Integration (CABEI, A1).

4 loans account for 47.5% of APICORP’s assets, direct equity 15.3%, and treasury 34.6%.

5 Treasury investment policy does not allow for investments in securities rated below Baa3.

6 Debt rescheduling by official/bilateral creditors.

7 Includes petrochemical, petroleum refineries, production and storage, gas processing, and other petroleum-related loans.

8 According to unaudited results.

9 United States (Aaa stable), United Kingdom (Aa2 stable), France (Aa2 positive), Germany (Aaa stable), Italy (Baa2 negative), Canada (Aaa stable), andJapan (A1 stable).

10 See Moody’s upgrades APICORP to Aa3, outlook stable, 25 September 2012.



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