04 Apr

S&P Expects GCC Capital Market Issuance To Bounce Back

DOHA:  Despite strong interest in credit ratings from previously unrated GCC-based corporates in new industries such as consumer goods, health care, and education, uncertainty and volatility in the global capital market have kept issuance volumes low so far in 2019. Nevertheless, S&P Global Ratings expects volumes to pick up strongly in the remainder of the year.

The S&P has seen visibly lower issuance by GCC corporate in the first months of the year. Total bond and Sukuk issuance in the year-to-date is around$1.1bn. This situation is likely to change in the coming days and months. With average yields on GCC bonds and Sukuk having to fall in recent weeks to levels not seen since 2017, issuers see an opportunity to lock in lower rates on long-term borrowings.

The regional real estate markets remain under pressure due to a combination of continued oversupply and waning demand. “We expect Dubai residential real estate prices to fall further in 2019, approaching levels last seen at the nadir of the 2009-2010 property crash, before a gradual stabilization in 2020, though without a meaningful recovery in 2021. We continue to see political risk, energy and water subsidies, and tax reforms across the GCC as some of the key near-term risks to the region’s issuer credit ratings.”

The introduction of VAT took place in some GCC counters in 2018, are expected to be followed by other countries in the region in 2019-2021, at a time when cost-reflective electricity and water tariffs are being phased in across several GCC countries. Operating costs for many businesses have also been hit by increasingly demanding rules for the nationalization of the workforce. Measures by the Organization of Petroleum Exporting Countries (Opec) and Russia to cut production by a combined 1.2 million barrels per day from October levels, for six months from January 2019, and US sanctions on Iran and Venezuela, have helped oil prices rise.

This supports the ratings on our hydrocarbon-exporting GCC sovereigns. “We have stable outlooks on all the rated GCC sovereigns. This, in turn, supports our issuer credit ratings, over half of which are on government-related entities (GREs), where a key rating driver is the creditworthiness of the related sovereign.”

A notable number of cases of ownership-support measures during 2018 and 2019 have also helped underpin S&P’s issuer credit ratings. These include the recent potential capital increase announcement by Kuwaiti investment holding company Kuwait Projects Co. (Holding) K.S.C. and the liquidity support that Qatar-based property company Ezdan Holding Group Q.S.C. (Ezdan) received from its majority shareholder. S&P expects such support to continue in 2019.

Originally published on www.thepeninsulaqatar.com

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