Gulf investment firms 'need major changes'
Dubai, June 28, 2010
Some investment companies in the Gulf will likely find it difficult to pursue their operations without dramatic changes in the wake of the global financial downturn, said Standard & Poor's Ratings Services.
"The main reasons behind this deterioration, in our opinion, are Gulf investment companies' generally high maturity mismatches they carry in their funding profiles and the ensuing weakened liquidity, weak business profiles, high leverage, and high exposure to real estate for some of them," said Standard & Poor's credit analyst Mohamed Damak in the report "Gulf Investment Companies Face The Need To Rethink Their Business Models And Financial Policies".
Investment companies in the Gulf Cooperation Council (GCC) countries, including those with banking licenses and private equity firms, navigated through testing times in 2009, some more successfully and some less.
A few defaulted on their financial obligations. And their moves to raise capital met with far higher obstacles than in the past. This has consequently called into question the sustainability of their business models.
"We believe that the GCC countries will continue to be net exporters of capital in the medium term, thanks to high oil prices that prevailed over the past five years and that we expect will likely remain high in the future. A substantial portion of this oil money will likely continue to find its way to local, government-sponsored projects and to global investment banks offering solutions for wealth management. We think the remainder will likely still flow to smaller investment companies in the Gulf.
"But in the short term, we see some major hurdles for Gulf investment companies to overcome on the potential road to recovery. These consist essentially in corrective measures that are, in our view, necessary to enable these companies to enhance the maturity profiles of their funding bases and reduce their leverage, as a means to prepare for better days, " said Damak. - Reuters