Despite the stabilising trend observed among the Gulf Cooperation Council (GCC) markets, credit ratings agency Moody’s Investors Service maintains a cautious outlook for GCC corporates in light of recent political developments in the region.
“While Moody’s believes that GCC corporate credit quality could further stabilise, the rating agency is mindful of the near-term economic impact that regional political instability could have on selected markets and issuers,” said David Staples, Managing Director for Corporate Finance in the GCC and co-author of a new report titled ‘Arabian Gulf Corporates: Outlook 2011 – Calmer seas amidst pockets of turbulence and a wave of refinancing.
Overall, the downward ratings trend seen among GCC corporates in 2009-10 has abated, but moderate pressure is likely to continue in 2011, hence Moody’s cautious outlook. “The risk of downgrades remains highest for lower-rated issuers, typically in the non-investment-grade spectrum, due to their need to refinance upcoming debt maturities and in some cases continue restructuring their real estate exposures,” Staples added.
The stabilising trend among GCC markets is underpinned by the broader recovery currently underway, in line with Moody’s macroeconomic forecast for a continued sluggish rebound among advanced economies in Europe, the Middle East and Africa (EMEA) in 2011.
“In the GCC, this trend is particularly driven by the resurgence in commodity prices, particularly in the hydrocarbon and petrochemical sectors,” explained Martin Kohlhase, a Moody's AVP – Analyst and co-author of the report. These factors highlight the importance of these sectors to regional economies and bolster the ability of governments to redistribute resources to investment and social programmes.