Emirate of Ras Al Khaimah assigned 'A' LT Rating on strong federal support; outlook stable

The outlook is stable. The Emirate of Ras Al Khaimah, which is one of the seven emirates that comprise the United Arab Emirates (UAE), is the 118th sovereign rated by Standard & Poor's.

"The ratings on Ras Al Khaimah rest primarily on ongoing support from the federal government of the UAE and the likelihood of extraordinary support in the event of financial stress," Standard & Poor's credit analyst Ben Faulks said. "The federal government, funded mostly by Abu Dhabi and to a lesser extent by Dubai, meets almost all the current expenditure costs and most of the capital expenses of the seven emirates that make up the UAE. In addition, the financial capacity of the UAE and the larger emirates, in particular Abu Dhabi, is ample to cover Ras Al Khaimah's modest liabilities."

The ratings are underpinned by the relatively strong wealth enjoyed by Ras Al Khaimah citizens, with GDP per capita approaching $16,000, in line with the 'A' median. Moreover, Ras Al Khaimah's growth prospects appear robust, with the overhaul of economic strategy since the appointment of Sheikh Saud bin Saqr al-Qasimi as Crown Prince in 2003 resulting in a substantial rise in investment and diversification of the economic base.

Ras Al Khaimah has very little debt (we estimate this at 16.5% of GDP at year-end 2007) and, taking into account the governmant's holdings of liquid assets, boasts a general government net asset position estimated by Standard & Poor's at around 25% of GDP--although the predominance of equity stakes in local companies raises uncertainties over the valuation and liquidity of the portfolio in the event of domestic stress.

The small size of Ras Al Khaimah's economy (around $3.5bn in 2007), which limits its debt sustaining capacity, is a constraint on the rating. Ras Al Khaimah's exposure to economic developments in the larger emirates and the region as a whole is another weakness. A collapse in regional demand could follow a global real estate correction, a sharp fall in oil prices, or a conflict between Iran and the U.S. or Israel over Iran's nuclear program.

"The stable outlook reflects the balance between the risks posed by geopolitical issues and Ras Al Khaimah's exposure to the economic fortunes of the larger emirates and the broader region, with the near certainty of continued ongoing support from the federation and the strong likelihood of extraordinary support from the federation, backed by Abu Dhabi,"

Mr. Faulks said.

"Downward pressure on the rating could result from a worsening of regional geopolitical tensions, a fall in demand for Ras Al Khaimah's main outputs resulting from a downturn in regional economic fortunes, or a deterioration in Abu Dhabi's creditworthiness, which could impact our assessment of likely support to Ras Al Khaimah from the federation. A positive ratings action could follow an easing of regional geopolitical tensions, the successful implementation of Ras Al Khaimah's development strategy, particularly with regard to real estate and tourism, or an improvement in Abu Dhabi's creditworthiness."