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Oil-rich Gulf states ‘pulling ahead of others’

Dubai, May 3, 2012

Oil-rich economies in the Gulf are increasingly pulling ahead of the region's other economies, on the back of continuously high oil prices, which support ratings across a range of corporate sectors, a Standard & Poor's report said.

As fears of political instability fan the Gulf, high hydrocarbon prices are continuing to underpin the economies of oil exporters Saudi Arabia, Kuwait, Qatar, UAE, Oman and Bahrain, said Standard & Poor's ratings report titled 'High Oil Prices Are Widening The Gap Between Gulf Oil Exporters And The Region's Other Economies'.

“And the high prices support oil & gas up- and downstream as well as sectors relying indirectly on commodity led growth such as trade,” said Tommy Trask, Standard & Poor's credit analyst.

Outside the oil sector, tourism and trade volumes have risen in the UAE, according to government data, benefiting from the slackness in commercial and tourism hubs such as Bahrain and Egypt, where the Arab Spring protests have taken their political and economic toll.

The region continues to progress in the restructuring of companies, predominantly government-related entities (GREs), that piled up hefty debt in order to make foreign investments during the boom years.

As regards Dubai-based issuers that we consider to be GREs under our methodology, we believe that the government has a clearer strategy and greater confidence on which GREs it should support with public funds, Trask said.

Market confidence in the Dubai government's ability to support remaining GREs in need has increased, in our opinion, given the track record of recent successful restructurings and the government's issue last week of a $1.25 billion sukuk.

The UAE central bank's recent amendment to tighten exposure limits for banks to local governments and public sector entities could curb lending in this segment, though, since some banks may already exceed the exposure limits.

Regional bond prices have remained highly volatile over the past six months, but bonds have been trading tighter in the past three months on general optimism in global financial markets. Consequently, more Gulf issuers are tapping the international capital markets to raise funds.

'We see the trend in rising capital market issuance as generally positive for credit quality since it has the potential to derisk balance sheets of issuers that have tended to rely heavily on short-term financing from local banks,' added Trask.

'Although the region's banks may be less inclined to grow their balance sheets, we think government-related entities continue to have good access to bank funding,' said Standard & Poor's credit analyst Karim Nassif, 'and infrastructure entities such as Taqa and Saudi Electric Co. have successfully raised Islamic financing internationally, which has supported capital spending and debt refinancing efforts.'

Contrary to market expectations, GCC banks were generally able to issue substantial amounts of long-term bonds in the first quarter of this year. Some of the region's banks are now less inclined to grow their balance sheets, given some uncertainty about access to wholesale funding and the potential direction of nonperforming loans and loan provisioning, the report said.

Regional equity markets have also recovered some ground over the past six months, following trends in global markets, which is positive news for investment companies, according to the report. – TradeArabia News Service




Tags: Dubai | GCC | Exports | Oil Prices | Standard & Poor’s | Ratings |

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