GCC firms reduce refinancing risk

06 December 2012

Gulf corporates’ credit-worthiness improves as debt is slowly repaid, but underlying risks still remain

The credit profile of non-financial corporates in the GCC is improving as they repair their balance sheets, repay and refinance their debts.

Buoyed by relatively high oil prices, the outlook for the region’s corporates is becoming increasingly positive, suggests a new report from rating agency Moody’s Investor Services.

Yet, the corporate environment is not without its potential risks.

Specifically focusing on Dubai’s high-profile debt problems, Moody’s says attempts by state companies to tackle debt issues as “credit positive”.  Over the past six or seven months, Moody’s has upgraded several Dubai-based companies, including Dubai Holding Commercial Operations Group and Dubai Electricity and Water Authority (Dewa).

The UK’s Standard Chartered Bank issued a research note in November stating that despite Dubai facing close to $50bn-worth of maturing debt between 2014 and 2016, its economy was now in a much better position to cope.

The credit recovery in the region is in stark contrast to trends in Western markets. In October, credit default swap (CDS) prices, or the cost of insuring Dubai debt against default, fell to below 300 basis points on five-year debt, which is below a number of eurozone countries and several US states.

Despite the positive outlook, the region cannot operate in isolation from the events in Europe. Moody’s highlights the retrenchment of European banks from the region and oil price volatility as just some of the potential risks to the region’s corporates.

Against this backdrop, GCC companies would be well-advised to continue to keep their books in order.

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