What’s in the cards for GCC corporates + economies this year? Companies in the GCC region — particularly those in the oil sector — are set to turn in growth this year, with strong capex deployment despite a high interest rate environment, S&P Global said during its GCC Corporate Outlook 2024 webinar yesterday. The ratings agency also touched on the impact of Red Sea disruptions on oil and gas players in the region, as well as Dubai’s real estate ratings.

GCC corporates are expected to “remain resilient despite soft economic growth,” with stable or slightly improved credit metrics and 5-10% annual EBITDA growth, S&P Global Ratings’ Director of Corporate Ratings Rawan Oueidat said during the webinar. Companies will turn in positive performance despite a challenging operating environment, including high interest rates, Oueidat said. Despite the high interest rate environment, companies are expected to continue making “sizeable” investments over the next two years, with capex investments ranging between USD 45-50 bn, Oueidat said.

Corporate performance will be buoyed by GCC economies turning in higher oil-related GDP growth on the back of OPEC+ cuts, Oueidat noted. Economies in the region are expected to grow 2-3% on average “benefiting from these oil prices.” The expectation of relatively high oil prices in the near term will help support cashflows for national oil companies in the region, “as well as companies along their value chain,” Oueidat said.

Where to watch for growth: In terms of the oil sector, S&P expects to see growth in chemicals and oil and gas, including oil field services, with improved utilization and fleet expansion contributing to better cashflow, Oueidat said. Going into 2024, demand may stay subdued initially, at least for the first half of the year with oversupply easing compared to 2023. S&P Global Ratings-rated chemical producers in the GCC are well-positioned due to cost advantages and strong balance sheets.

Where to watch for downside risk: Geopolitical risks, investment delays, and slower economic growth are key concerns.

Non-oil economic growth in the UAE and Saudi Arabia is expected to hit 5%, compared to overall average GDP growth across the region of 2-3%. Non-oil GDP growth will be underpinned by tourism, demographics, hospitality, retail, and airlines, S&P Global Ratings Associate Director of Corporate Ratings Tatjana Lescova said. These sectors are, however, exposed to external risks such as geopolitical tensions.

Where to watch for growth: Consumer products and healthcare are also expected to post strong growth due to sustained consumer spending and mandatory ins., while telecom will see organic growth as well as through M&A, Lescova said. Education will grow in tandem with growing populations, especially in Dubai. Engineering and construction remain solid due to mega projects.

Credit growth in the UAE is expected to slow slightly from last year’s 7% due to high borrowing costs and a slowdown in the non-oil sector, Managing Director and Sector Lead for Financial Institutions in EMEA and Global Head of Islamic Finance Mohamed Damak said. However, retail borrowing will remain strong since “banks will want to continue to expand this profitable sector,” he noted. Banks in the UAE maintain high liquidity, with a fifth of the balance sheet in pure liquidity — cash and money market instruments — supported by strong customer deposits and limited reliance on external funding.

Red Sea disruption impact: The current disruptions in the Red Sea are viewed as manageable for rated oil and gas issuers for the time being given that the majority of hydrocarbon exports from the GCC are directed towards Asia, according to Oueidat. A complete or partial closure or disruption of the Strait of Hormuz is seen as posing a significantly greater risk.

Dubai real estate market: Ratings in Dubai’s real estate sector have rebounded to pre-covid levels, with some developers surpassing those levels, Lescova said. The improved performance comes on the back of strong international demand, a supportive macro environment, and favorable oil prices, as well as Dubai government initiatives to drive population growth (including wider visa issuances), innovation support, and improved regulations. However, risks of a cyclical slowdown have increased due to a surge in new project launches since 2021 that have pushed prices past their peak in 2014, potentially leading to a gradual slowdown in price increases and a mild price correction in the future for which developers are well-positioned.

Tags: