The outlook for corporate credit quality in the Gulf region going into 2010 is one of slow recovery or at least stabilisation, according to a Moody's report. The main drivers of credit quality will be industry-specific fundamentals, the report said.

In its new special comment entitled 'Arabian Gulf Corporates: Review 2009 & Key Themes for 2010', Moody's said it expects fundamental corporate credit to stabilise, in line with a gradual recovery of the global economy, but also on the back of some more rapidly recovering domestic economies.

The report also identifies six key themes that will drive credit quality among Gulf corporates in 2010.

'The main drivers of credit quality will be industry-specific fundamentals as well as the companies' ability to improve liquidity profiles and to extend debt maturities, which have remained comparatively short and clustered,' explains Philipp Lotter, Dubai-based senior VP in Moody's Corporate Finance Group and co-author of this report.

Another key theme for 2010 is Moody's expectation of an increase in corporate issuance among high-quality issuers as companies replace shorter tenors with longer maturities, and reduce their historically heavy reliance on rollover bank lending whilst continuing with their investments.

Other themes include government support, which will remain under scrutiny, and transparency levels at both corporate and government level, which need to be enhanced for investor confidence to be restored.

In its review of 2009, Moody's new report says that it was a testing year for the Arabian Gulf corporate landscape.

'In previous years, the number of publicly known corporate defaults in the region had been negligible and the GCC demonstrated a highly interventionist and creditor-friendly track record,' said Raffaelle Semonella, associate analyst for corporates in Dubai and co-author of this report.

However, by the end of 2009, a number of high profile-defaults had started to change this picture.

A sharp deterioration in corporate credit quality due to a combination of weaker fundamentals and sovereign support uncertainty led to a substantial downward ratings migration, with a total of 34 rating actions of which all but two were in a negative direction.

'Indeed, the average rating in the Gulf has migrated from A1 in 2008 to Baa1 in 2009,' said Lotter.-TradeArabia News Service