Fitch Ratings has assigned an 'A+' Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to the Gulf Cooperation Council Interconnection Authority (GCCIA), reflecting a stable outlook.

GCCIA is integral to regional energy security, interlinking the electricity grids of Gulf Cooperation Council (GCC) member states through a 400KV power grid.

The rating underscores strong support from GCCIA's six member states, who oversee its operations and provide financial backing, highlighted by Fitch Ratings in its statement.

"GCCIA receives consistent support from its owners in the form of top-up payments to annual fees to cover any shortfall in debt servicing resulting from unforeseen rises in operating expenses due to planned expansion investments. We expect these additional contributions to average 32 percent of its operating revenue over the medium term," Fitch noted.

Fitch also emphasised GCCIA's robust financial profile, characterised by increasing revenues and low debt levels. However, the agency acknowledged that GCCIA's debt is projected to rise significantly due to planned expansion projects. By the end of 2023, GCCIA's outstanding financial debt had increased to $128.4 million, with borrowings from regional development banks financing its interconnection network expansion projects in Kuwait and Iraq.

"GCCIA's capex-related debt at end-2023 was contracted at fixed rates and hedged, thereby mitigating interest-rate or foreign-exchange risks. Total debt consists solely of loans from regional development banks, featuring an amortising profile and extended maturities," the statement said.

While GCCIA is not yet a regular or large issuer of financial market debt, Fitch Ratings projects that its debt will rise to $1.3 billion by the end of 2026, with most of the financing sourced from GCC regional development banks.

A Saudi Press Agency (SPA) report on Monday quoted GCCIA CEO Ahmed Ali Al-Ebrahim as saying that the 'A+' credit rating enhances the Authority's ability to secure financing on favourable terms, obtain low interest rates on loans, and strengthens investor confidence. Al-Ebrahim said the Authority has focussed on revising its financial model in preparation for the GCC grid’s expansion, emphasising that upcoming projects will require significant funding from financial institutions, rather than relying on GCC member states.

Earlier this month, the Kuwait Fund for Arab Economic Development (KFAED) signed a second loan agreement with GCCIA valued at 35 million Kuwaiti Dinars ($112 million) for the development of the GCC-Iraq interconnection project.

(Editing by Anoop Menon) (anoop.menon@lseg.com)

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