Despite soft global economic growth, high interest rates, and significant geopolitical risks in the Middle East, most corporate and infrastructure firms in the GCC region are benefiting from supportive credit conditions in their domestic markets, according to a new report.
In its latest report, S&P Global Ratings stated that the growth in both EBITDA (earnings before interest, taxes, depreciation, and amortization) and capital expenditure (capex) is expected to continue, largely driven by the ambitious economic development plans of rated companies. As a result, their credit metrics are projected to remain relatively stable or improve slightly.
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S&P Global Ratings credit analyst Rawan Oueidat expressed confidence that the majority of GCC corporate and infrastructure ratings will remain resilient in 2024, despite the challenging global economic environment and high interest rates. Oueidat noted that the anticipated growth in EBITDA and capital expenditure reflects the ambitious economic development plans of rated companies, which should contribute to the stability or marginal improvement of their credit metrics.
Manageable refinancing risk
Regarding refinancing risk, Oueidat stated that it is manageable for the rated portfolio, as a significant portion (75 percent-80 percent) of the debt maturing in 2024 is held by highly rated government-related entities (GREs). Additionally, the level of reported debt, both for GRE and non-GRE issuers in the region, is relatively stable. Oueidat emphasized that despite substantial spending needs, the aggregate reported debt is expected to remain largely unchanged under the base-case scenario in 2024 and 2025.
Rebound anticipated in earnings for oil, gas and chemical companies
S&P Global Ratings anticipates a rebound in earnings for oil, gas, and chemicals companies in 2024. Another analyst, Tatjana Lescova, estimated that non-oil sector earnings would grow by approximately 7 percent this year, compared to 15 percent in 2023.
In the infrastructure sector, analyst Sofia Bensaid predicted an acceleration in the implementation of decarbonization initiatives following COP28 and the gradual return of issuers to the capital markets for debt refinancing.
Sapna Jagtiani, analyst at S&P Global Ratings, stated that over 95 percent of the outlooks on rated GCC corporate and infrastructure firms are stable, indicating the expectation that ratings will remain resilient in 2024. However, this also suggests limited rating upside for the year. Jagtiani warned that companies operating in cyclical sectors and making significant investments could face rating pressure if their leverage metrics increase. The high geopolitical risk in the region also poses a risk to companies reliant on investor confidence, according to Jagtiani.
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