New report offers positive outlook for GCC corporate and infrastructure firms
A new report by S&P Global Ratings offers a positive outlook for corporate and infrastructure firms in the GCC region, despite global headwinds.
Most GCC corporate and infrastructure firms benefit from broadly supportive credit conditions in their domestic markets. This is despite soft global economic growth, high interest rates, and considerable geopolitical risks in the Middle East, says the report titled “GCC Corporate And Infrastructure Outlook 2024: Holding Up Against Refinancing Needs.”
The report expects most GCC companies to maintain stable creditworthiness in 2024, even amidst a sluggish global economy, rising interest rates, and regional geopolitical concerns.
“Most GCC corporate and infrastructure ratings should remain resilient to the soft global economic growth and high interest rates in 2024, said S&P Global Ratings credit analyst Rawan Oueidat.
“We expect continued growth in both EBITDA and capital expenditure overall, largely reflecting rated companies’ ambitious economic development plans. Their credit metrics should therefore either remain broadly unchanged, or improve marginally,” Ms Oueidat added.
Continued growth in both earnings (EBITDA) and capital expenditure (capex) is anticipated, fueled by ambitious economic development plans within the region.
The majority of debt maturing this year is held by highly-rated government entities, mitigating refinancing risk.
S&P Global Ratings anticipates a rebound in earnings for oil, gas, and chemical companies, while non-oil sectors are expected to see moderate growth. In the infrastructure sector, an acceleration in green initiatives and a potential return to debt markets for refinancing are predicted.
“We expect oil, gas, and chemicals companies’ earnings to rebound in 2024,” Ms Oueidat said.
While the overall outlook is positive, S&P Global Ratings cautions that companies in cyclical sectors with high investments and those heavily reliant on investor confidence could face rating pressure due to the challenging environment.
Outlining growth drivers in the non-oil sector, the report says the GCC region can expect a ripple effect from its thriving tourism industry and favorable demographics. This will positively impact several sectors, including hospitality, retail, and airlines.
Furthermore, low inflation (around 1.5-2pc) will keep consumer spending healthy, allowing healthcare, education, food & beverage, and leisure businesses to benefit from the growing population.
In the next five years, the region is poised for significant activity in the renewable energy sector. While heavily reliant on fossil fuels currently, GCC countries are shifting towards clean energy solutions. This is driven by a desire to reduce dependence on oil and gas, explore clean energy exports, and embrace sustainable solutions like reverse-osmosis desalination plants, which are more energy-efficient than traditional methods.
Beyond energy, the region is also witnessing substantial investments in transportation, social infrastructure, and digitalization. This includes major spending on connectivity, doubling of data center capacity, and improved transportation infrastructure to cater to the growing population. Overall, the report paints a picture of cautious optimism for GCC companies. While external factors present risks, the region’s strong domestic fundamentals and ambitious growth plans are expected to provide a buffer in 2024 and beyond.
