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ANALYSIS

GCC businesses ‘proceed cautiously amid recovery’

DUBAI, February 2, 2021

Corporate and infrastructure finance companies in the GCC countries are likely to operate conservative strategies through 2021 as the economy recovers slowly from the Covid-19 pandemic and oil shock, said S&P Global Ratings in a new report.

"Absent a substantial recovery in revenue generation, they are likely to focus on cost optimization, proactively managing their liquidity, and preserving their cash flows, while new investments will continue to take a back seat in most sectors," said S&P Global Ratings credit analyst Timucin Engin, commenting on the report titled "GCC Corporate And Infrastructure Outlook 2021: Proceeding With Caution".

GDP in the GCC countries are expected to recover modestly, by about 2% in 2021 on average, from the sharp contraction in 2020, while the business cycle is likely to take several quarters at least to fully recover, the report said.

Pressures look set to continue in corporate sectors, particularly for companies operating in tourism, aviation, real estate, and non-food retail. The same is true also for the larger oil, gas, and commodities sectors--including oil field services---because revenue generation is expected to remain under pressure relative to 2019.

Currently, close to 38% of the 32 corporate and infrastructure issuers S&P Global rates in the GCC carry a negative outlook (including one on CreditWatch with negative implications). If government-related entities (GREs), which represent just over half of our corporate and infrastructure rated portfolio, are excluded, this ratio reaches close to three-quarters.

“Corporations will continue to focus on optimizing costs, managing liquidity, and preserving cash flow,” the report said.

“We expect new investments will take a back seat in most sectors over the next 12months. Aviation, tourism, real estate, hospitality, non-staple retail, and oil and gas remain the most exposed sectors. Telecommunications, utilities, and food retailers, meanwhile, are relatively better protected,” it added. – TradeArabia News Service




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