'Gulf corporates to weather challenges'

Fitch, an international credit rating agency, expects the Gulf corporates to weather challenges such as potential global demand slowdown and inflationary pressures, although as much as 32% of their bonds will mature this year and 68% in 2024-2025.
"In addition, we expect oil price assumptions to benefit fiscal budgets and contribute to economic activities," Fitch said, adding major GCC economies are focusing on investments in non-hydrocarbon sectors to limit budget volatilities to oil prices.
The government-related entities (GREs) are set to be primary beneficiaries of this spending, as key contributors to economic growth and private sector job creation, according to the rating agency.
"We expect the oil and gas sector to sustain stable performance in 2023 supported by scalability, strong cash flow generation and low costs. Investments in infrastructure and urban development projects will enable healthy activity in sub-sectors such as engineering and construction," the report said.
Highlighting that the real estate sector is exposed to inflationary pressures and high costs of funding; it said most Fitch-rated property real estate companies have low-yielding prime assets and long-dated maturities, enabling them to partially offset pressures on margins and valuations.
Demand for housing will remain supportive of homebuilders’ business models. Homebuilders will be exposed to further working-capital swings and deteriorating margins in 2023, it said.
Finding that Ebitda (earnings before interest taxes, depreciation and amortisation) margins remained fairly stable in 2022, heading towards a small decrease in 2023; Fitch said the margins were supported by growing demand and solid pricing, outpacing inflationary costs.
"We expect non-hydrocarbon sectors to absorb some cost inflation. Companies reported strong earnings due to robust market fundamentals, exceeding Fitch’s base case assumptions for 2022," it said.
Refinancing risk remains modest for Fitch-rated investment and non-investment grade issuers in the Gulf, the report said; adding corporates are likely to refinance at far higher rates than 2018 levels with the US Fed’s terminal rate peaking at 5% in 2023.
The impact of funding costs will be greater for non-investment grade issuers with variable-rate debt and high exposure to bank loans. Investment grade issuers have smooth debt maturity profiles and more diverse capital structures, mitigating refinancing risks.
"In the wider market, scheduled bond maturities for 2023-25 are about $65bn," it said.
Active refinancing in the syndicated loan and private credit markets in 2022 and significant fixed income issuances in 2021 helped Gulf corporate issuers meet funding requirements and manage liquidity buffers.
Highlighting that 32% of bonds will mature in 2023, and 68% in 2024-25, Fitch said "we expect mid-term refinancing risk to remain low for high-rated issuers with access to capital markets."