Large GREs in the GCC are better positioned to withstand low oil prices, said S&P Global Ratings in a report, adding that the governments are on a path to addressing the fiscal deficits through various forms of expenditure reform.

Large GREs (government –related entities) in the GCC are better positioned to withstand low oil prices, said S&P Global Ratings in a report, adding that the governments are on a path to addressing the fiscal deficits through various forms of expenditure reform.

The structural shift in the GCC energy markets is now well and truly established, added the report entitled “Large GREs in the GCC with important mandates are better positioned to withstand low oil prices".

"This will have both direct (e.g. higher taxation and subsidy reform) and indirect (weaker economic growth and demand for goods and services) implications for practically all our issuers in the region," said S&P Global Ratings credit analyst Karim Nassif.

“In 2016, we already downgraded eight corporate and infrastructure GREs on the back of sovereign rating actions, and took negative rating actions on five companies that are directly exposed to the hydrocarbon industry.

“As we look forward, corporate and infrastructure companies most able to operate successfully and deal with the implications of the reform agenda (higher taxes, lower subsidies) will be best able to wade out the transformational market changes that are occurring,” he added.

Large GREs with important mandates in the oil & gas, utilities, and telecom sectors, for instance, as well as private corporate and infrastructure companies that are leaders in their respective fields, have adopted conservative funding strategies, and are not dependent on subsidies and government hand-outs for their operations.

“We have not yet seen a trend for governments to prompt their GREs to lever up to increase shareholder distribution, and this has been a key underpinning to rating performance,” said Nassif.

 Sectors that have been hit the hardest so far include the private sector oil & gas and construction industries, that are faced by lower investment, project delays and retendering, margin pressure and delays in customer payments.

The fact that about two-thirds of our rated corporate and infrastructure ratings are GREs explains the dominance of stable rating outlooks despite the economic headwinds.

“Our updated economic projections for the GCC reflect aggregate GDP growth of about 2 per cent for 2016 and 2017, similar to growth levels in 2015. We assume Brent crude will average $45 per barrel in 2017, $50 in 2018, and $55 for 2019 and beyond,” S&P said in the report. – TradeArabia News Service