Several companies in the Gulf's corporate and infrastructure segments could bear greater refinancing risk because they have delayed issuances to the capital markets, said Standard & Poor's Ratings Services in its latest industry report titled “Swinging Bond Spreads Heighten Refinancing Risk For The GCC Corporate And Infrastructure Segment.” Conditions for issuing bonds in Gulf Cooperation Council countries took a turn for the worse in August 2011, but have recovered some ground in October. Bond prices were highly volatile in recent months, with lower rated issues trading sharply down and yields spiking in the secondary market. “We believe investors' increased risk aversion and concerns about the negative implications of slowing global economic growth are behind the swings,” said Standard & Poor's credit analyst Tommy Trask. Some companies are turning back to banks for their refinancing needs. In our view, banks in the GCC appear to be liquid and able to step in to provide the necessary funding for regional corporates, which typically rely heavily on short-term bank funding. “Higher rated issuers should have no problem rolling over debt, but those farther down the rating scale may find it more difficult to do so,” Trask said. “Overreliance on short-term bank debt also exposes issuers to refinancing risks down the line.” “Weakening economic growth worldwide could pull down international trade and tourism activity in the GCC and lead to lower commodities prices in the months ahead,” added Standard & Poor's credit analyst Karim Nassif. Standard & Poor's forecasts GDP growth in the eurozone at 1.1 percent in 2012. It does not expect a double-dip in the eurozone as a whole, but estimates the probability of a new recession in Western Europe next year at about 40 percent. Governments in GCC oil-exporting countries have taken extensive stimulus measures. We believe these measures are likely to boost local demand and economic growth from 2011 onward. “We also note the improved trade flows through Dubai this year, with help from the region's close ties and proximity to growing developing markets,” Nassif said. The regional equity markets tend to follow the broader trends of global equities, which performed very poorly in the past three months, mainly because of eurozone sovereign debt woes. However, they've recovered some ground in recent weeks. If the high volatility and sluggish performances continue, we believe some GCC investment companies could face funding problems.
