Fitch predicts neutral outlook for Gulf companies in 2024

Fitch Credit Rating Agency reported that its expectations for the Gulf corporate sector are neutral for the year 2024, supported by public sector spending, especially in the field of infrastructure and energy, suggesting an improvement in the Gulf balance sheets based on its assumptions regarding oil prices for the current year.

The agency said, in a recent report on its expectations for Gulf companies: “Long-term investments in the oil and gas sectors are likely to continue in the current year, with lower crude extraction costs and the creation of strong cash flows for national oil companies in the region,” reports Al-Qabas daily.

“The private sector in the Gulf countries will benefit from economic activities led by government projects, and the pressure resulting from high financing costs will continue until the end of 2024, and will often be observed in the most indebted entities,” said the agency.

Fitch expects that non-oil sectors will benefit from development and investment initiatives led by Gulf governments, which will enhance infrastructure investments and reflect positively on priority economic sectors such as tourism and services, pointing out that the two largest Gulf economies (Saudi Arabia and the Emirates) will lead the path of investments in the region during the current year.

The agency referred to its previous expectations for non-oil GDP growth in the Gulf states by 3.7% in 2024, which is a marginal decline from the 4.2% estimated so far for 2023, explaining that the distribution of huge investments could be adjusted in the current year, due to possible shifts in policies. The financial situation of the countries of the region depends on the accumulation of demand for projects, and the levels of cash flows for the non-oil sectors.

Fitch added, “The capital structures of borrowers in the Gulf classified by the agency mostly adapted to the potential returns, which led to a 3.5-fold increase in fixed income issuances last year compared to 2022.”

Fitch Ratings Agency expects an increase in the activity of Gulf corporate debt markets in 2024, depending on certain economic and financial conditions, such as fluctuations and the ability to access regional and global financial markets, noting that the total maturities of bonds and sukuks for the period 2024 and 2026 amount to about $30 billion for corporate issuers in the Emirates and Saudi Arabia. .

Fitch also confirmed that the refinancing risks of its rated Gulf companies are considered modest, explaining that the majority of the debt issues of the region’s companies rated by it have a stable future outlook, and that in 2023 the agency reviewed the expectations of many Gulf companies to stable or positive, based on the improvement of their finance files or raising the sovereign ratings of their countries.

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