Infrastructure and corporate companies located in the Gulf have had debt issuance fall by 58% just in the last one year to approximately $7 billion (AED 25.70 billion). This occurred with Gulf companies confronting a weaker working environment in lieu of lower oil prices.
The most recent data released on Monday by Standard and Poor’s [S&P] – a rating agency, mentioned that the credit cycle in most likelihood has touched a probable tipping point, with greater pricing expected in the coming days. Government expenses that many companies are dependent on are also decelerating due to oil prices dropping more than half in price since June of 2014.
However, Standard and Poor’s stated that there are numerous factors to push users to turn to the capital markets throughout the next year, including the dropping liquidity of resident banks and the new financing by government associated entities in the year 2016.
The opening of markets to foreign investors is another factor, as markets such as Tadawul, in addition with the Iranian market opening up if the nuclear treaty goes ahead as anticipated, are some of the key factors. An S&P analyst named Karim Nassif said that lower prices have put pressure on the Gulf Cooperation Council (GCC) governments, considering the government of the region’s plans to meet budget deficits by the end of 2015.
Mr. Nassif stated that when we look into the governments, most of the governments that are rated within the Gulf region are still ‘stable.’ He labeled the negative ones, such as Saudia Arabia as [AA-] and Bahrain [BBB-]. The overall outlook seems mostly stable for the governments in the Gulf. As for companies, most of them are trying to be stable and are capable of withstanding the year’s declines in properties and commodities.
He also told Gulf News that oil and gas companies have witnessed the greatest declines and S&P has even downgraded some of them. According to Mr. Nassif the working environment will probably stay a challenge, as they don’t anticipate oil prices to recover significantly anytime soon. The general view at S&P’s is that oil prices in 2015 will stand at $55 per barrel and by 2016, it will move up to $65 and then up to $75 by 2017.
With recent deregulation of oil prices in the UAE, Mr. Nassif assumed this matter will have its toll on companies, especially because lower fuel prices have frequently been a competitive benefit for companies that operate within the region.
Notwithstanding expectations of a sterner pricing environment in the future, S&P stated it projected that Gulf Cooperation Council (GCC) issuers will have adequate room in their economic profiles to survive a hiked rate sent forth by the US Federal Reserve.