GCC corporates reeling under Covid-19 impact

MANAMA: Corporates and infrastructure players in the GCC countries are feeling the effects of an abrupt and severe global credit downturn caused by the Covid-19 pandemic, according to a new report by S&P Global Ratings.

The analysis shows a weaker macroeconomic picture, negative employment trends and consumer spending, and a softer 2020 across the board, with a focus on preservation rather than growth across the GCC.

“Since mid-March, we have taken negative rating actions on 16 rated regional players, mostly amid increased pressure from the global pandemic and a sharp fall in hydrocarbon prices, and significantly lowered our economic growth forecasts for the GCC countries,” said S&P Global Ratings credit analyst Timucin Engin.

The agency now expects a mid-to-high single digit real GDP contraction for most rated GCC sovereigns in 2020 and operating conditions to remain weak over the next few quarters.

The agency expects a mid-to-high single digit real GDP contraction for most rated GCC sovereigns in 2020

Aviation, tourism, real estate, hospitality, non-staples retail, and oil and gas are the most exposed sectors, while telecommunications, utilities, and food retailers are relatively protected from deteriorating conditions. As a result, most regional companies’ earnings and revenue will be hit, and S&P has even slightly lowered topline forecasts for relatively more resilient sectors, such as telecom, due to an overall weaker macroeconomic picture and subdued population trends.

“We expect Dubai real estate to remain under pressure in 2020 with only a partial potential recovery in 2021, which may be slow and painful given the significant oversupply in all segments even prior to the pandemic,” said S&P Global Ratings credit analyst Sapna Jagtiani.

The US-based ratings agency is also expecting a more cautious spending approach from oil and gas players, with capital expenditure cuts and downward revisions from 2020 guidance already announced so far.

“However, GCC national oil companies should benefit from their cost advantage compared with global peers in the low oil price environment,” said the firm’s credit analyst Rawan Oueidat.

Overall, S&P expects GCC corporates to take at least a few quarters to recover, with key focus on cost optimisation, managing liquidity, and cash flow preservation, and new investments taking a back seat for most sectors.

Source: http://www.gdnonline.com/Details/838462/GCC-corporates-reeling-under-Covid-19-impact