The credit outlook for Gulf Co-operation Council (GCC) property and construction issuers remains broadly stable due to varying degrees of state ownership, whereas it remains negative for Russian/Ukrainian companies in 2009, according to credit rating agency Fitch Ratings.
In advance of its forthcoming mid-year Emea Industrials outlook update, Fitch said property markets in the GCC, Russia and Ukraine continue to decline. Demand for construction and property is falling across the GCC, and access to finance remains difficult, it added.
"The negative impact could be felt most in Dubai, as the residential and commercial property market is subject to increasing customer delinquencies and an ongoing shortage of liquidity. Conversely, in Saudi Arabia, the downturn in the property market is expected to be less severe, as demand still currently outstrips supply and is likely to be sustained by the local population, as opposed to the more volatile demand levels from Dubai's largely expatriate population," said Bashar Al Natoor, Director in Fitch's Industrials group.
As a result of the downturn, the agency noted that mergers and acquisitions transactions are an increasing possibility for strategic and opportunistic purposes for GCC corporates in the construction and property sector. Qatar Real Estate Investment Company (Alaqaria) (BBB+, Stable) and Barwa Real Estate Company are currently in merger discussions.
In Dubai, Dubai Holding Commercial Operations Group (A+, Stable) is in merger talks with Emaar Properties. Fitch is closely monitoring developments on these companies and will evaluate the impact of any changes on the issuers' ratings, said a press statement.
Russia's property market downturn, which started in late 2008, is expected to continue through 2009, driven by GDP declines, rationed financing for property buyers, stagnant investor activity and negative sentiment. Both volumes and prices are expected to continue falling, and Fitch estimates prices will decrease by 20 to 40 per cent in 2009 depending on region and sector.
As Fitch highlighted in its June 4 special report, Liquidity Focus: Russia/Ukraine Construction and Property, liquidity in the sector remains extremely weak, while longer-term funding through bond issuance (international or domestic) is currently not a viable option.
Julian Crush, Senior Director in Fitch's Industrials group said: "Fitch believes outright defaults have only been avoided because of the actions of creditors."
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