Moody’s Signals Bahrain F1 bid won’t make it off the starting line

Moody’s downgrades Bahrain to Baa1 with negative outlook
Bahrain: 17 hours, 15 minutes ago

Moody’s Investors Service has downgraded Bahrain’s government bond ratings by one notch to Baa1 from A3, and assigned a negative outlook to the rating. The rating action concludes the review for possible downgrade that Moody’s initiated on 23 February 2011.

Moody’s decision to downgrade Bahrain’s ratings is driven by the following three reasons:

1. The likely adverse effect of the recent turmoil on the country’s growth prospects and its public finances.

2. Continuing increases in the break-even oil price that is needed to balance the budget.

3. A weakening of the fundamental strength of Bahrain’s large banking sector.

The negative outlook on the Baa1 ratings reflects Moody’s continued concern over the recent situation in Bahrain.

Ratings Rationale

The main driver underlying Moody’s decision to downgrade is the significant deterioration in Bahrain’s unrest environment since February. The government of Bahrain has forcibly suppressed an uprising by the Shi’ah-led opposition with the backing of an intervention of armed forces from other member states of the Gulf Cooperation Council (GCC), most importantly from its neighbour Saudi Arabia. Tensions in the country remain high and there seems little prospect of the underlying causes of the unrest being peaceably resolved, at least over the short term. The unrest outlook is therefore highly uncertain.

Moody’s believes that these events are likely to have damaged economic growth significantly, especially in services sectors such as tourism, trade and financial services. These sectors had previously been championed by the government in its effort to diversify the economy away from oil. The timing and pace of any economic recovery will very much depend on the recent unrest developments. In any case, the negative effect on consumer and investor confidence will likely linger. …more