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GCC corporates credit quality gains strength
Published in The Saudi Gazette on 10 - 07 - 2012

JEDDAH – The credit quality of rated non-financial corporates in Gulf Cooperation Council (GGC) markets has continued to improve as a result of the modest global economic recovery, high oil prices and the reduction of refinancing exposure, said Moody's Investors Service in a report entitled "GCC Corporates: Credit Quality Bolstered by Modest Global Recovery and High Oil Prices" published Monday. "For more than a year, high oil prices have bolstered the ability of GCC governments to invest windfall profits in public and social programmes," said Martin Kohlhase, Vice President, Senior Analyst on Moody's Corporate Finance Group and author of the report. "This increased spending has directly helped corporates in the infrastructure, utility/energy and real estate industries, and indirectly supported those active in the retail, hospitality and tourism sectors by boosting consumer spending," he said. "GCC corporates have also taken steps to reduce their refinancing exposure and strengthen their liquidity profiles by repaying debt or rolling over previous maturities." Moody's notes that rating trends within the main GCC markets are driven by different factors. In Dubai, rated corporates with exposure to refinancing risk have successfully repaid or refinanced maturing capital market debt instruments during H1 2012, thus resolving longstanding uncertainty affecting the Emirate. In Abu Dhabi and Qatar, the region's other two main markets, Moody's expects the generally solid credit profiles of rated issuers to continue benefiting from favorable government policies and strong public finances. Moody's scenarios of oil price volatility and regional geopolitical factors would only have a moderately adverse impact on the credit quality of its rated issuers because of the strategic nature of government investment programs. If break-even oil prices were to rise further, the hydrocarbon wealth accumulated over the past decade would allow governments to sustain their spending programs, thereby limiting the downside risks for corporates that rely on them. If Iran were to block the Strait of Hormuz, Moody's believes that the resulting disruption to oil supplies, while substantial, would likely be short-lived, because this critical channel for global supplies would in all likelihood reopen relatively quickly. The partial retrenchment of European banks from the GCC is not a concern for Moody's rated corporates in the region. Banks' lending activities to highly-rated government-related issuers (GRIs), which make up a significant portion of Moody's rated GCC corporates, remains unchanged given that GRIs are less problematic from a risk-weighted asset perspective. Weaker corporates have either turned to regional or other international banks, or expanded their debt capital market access to offset the reduced lending limits introduced by some European banks. – SG

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