Infrastructure credit outlook stable

High S&P's ratings on GCC sovereigns, ranging from BBB to AA

The effects of the recent social unrest and political upheaval in the Middle East and North Africa are uneven across the corporate and infrastructure sectors in the Gulf Cooperation Council (GCC) states, said Standard & Poor’s Ratings Services in a report released today, titled ‘Despite Unrest GCC Credit Quality Outlook In Infrastructure Is Broadly Stable And Corporate Prospects Are Mixed.’
“In the past six months, GCC corporate and infrastructure entities, as well as infrastructure projects, have accessed the capital markets and we expect this to continue. In our view, the generally high ratings on GCC sovereigns, ranging from 'BBB' to 'AA', provide the backbone of reassurance that the markets seek to keep funding these companies and transactions,” S&P said.
“In infrastructure, we consider our ratings – largely based in Qatar, the UAE, and Saudi Arabia – to be widely insulated, for now, from the disturbances affecting other MENA countries,” said S&P’s credit analyst Karim Nassif. “Specifically in project finance, we see an immediate positive impact from rising commodity prices and the general focus of projects on selling to overseas markets.”
“In our opinion, the potential for growth in the number of issuers and issues we rate in the GCC is strong, given the generally high investment and refinancing needs in the region and relatively short debt maturity profiles by international standards. We expect to assign new ratings in 2011 in a wide range of industries, barring any sharp deterioration in the political landscape,” S&P said.
“We continue to foresee a plump pipeline for infrastructure projects in power and water, transport, and renewable energy. In addition, we believe there’s room for expansion in Islamic finance. To date, only a couple of issuers have issued Shariah-compliant project financings,” it noted.
“Across the corporate spectrum, we anticipate generally stable credit quality for companies in the telecommunications and commodities sectors, whereas we foresee continued negative creditworthiness trends in real estate and construction,” said S&P’s credit analyst Tommy Trask, “and our overall outlook on the credit quality of GCC infrastructure companies and transactions is stable.”
Of S&P’s 29 public corporate and infrastructure ratings across the GCC, five are currently on CreditWatch with negative implications or carry a negative outlook, with the remainder on stable outlook.
The real estate sector accounts for three negative outlooks: Emaar Properties (BB/Negative/--), DIFC Investments (B+/Negative/B), and Jebel Ali Free Zone (B/Negative/B). Although these three property companies are all headquartered in Dubai (not rated), Emaar and DIFC bear some exposure to markets currently undergoing social unrest and political transition, while JAFZ is exposed to risks related to its parent company Dubai World, S&P said.
“We recently downgraded Bahraini sovereign wealth fund Bahrain Mumtalakat Holding (BBB/Watch Neg/--) and placed it along with one utility, Oman Power and Water Procurement (A/Watch Neg/--), on CreditWatch negative following our similar respective actions on the sovereign ratings on the Kingdom of Bahrain (BBB/Watch Neg/--) and Sultanate of Oman (A/Watch Neg/--),” the agency noted.
 
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