GCC firms will hold up against refinancing needs in 2024: S&P

Most GCC corporate and infrastructure firms benefit from broadly supportive credit conditions in their domestic markets. This is despite soft global economic growth, high interest rates, and considerable geopolitical risks in the Middle East, according to S&P Global Ratings.

"Most GCC corporate and infrastructure ratings should remain resilient to the soft global economic growth and high interest rates in 2024,” said S&P Global Ratings credit analyst Rawan Oueidat in a statement on Monday.

"We expect continued growth in both EBITDA and capital expenditure overall, largely reflecting rated companies' ambitious economic development plans. Their credit metrics should therefore either remain broadly unchanged, or improve marginally," Oueidat added.

S&P Global Ratings believes that refinancing risk is largely manageable for its rated portfolio, since 75%-80% of the debt maturing in 2024 sits at highly rated government-related entities (GRES).

In addition, the rating agency said that the level of absolute reported debt across GRE and nonGRE issuers in the GCC region is relatively stable. Aggregate reported debt hardly changes under our base-case scenario in 2024 and 2025, despite sizable spending needs.

"We expect oil, gas, and chemicals companies' earnings to rebound in 2024," Oueidat said. "We estimate that non-oil sector earnings will grow by about 7% in 2024, compared with 15% in 2023," Tatjana Lescova added.

"In infrastructure, we anticipate an acceleration in the implementation of various decarbonization initiatives following COP28, alongside issuers' progressive return to the capital markets for debt refinancing," S&P Global Ratings analyst Sofia Bensaid noted.

"We expect GCC infrastructure assets to remain resilient to market risk over 2024, as they often have long-term concessions that fully mitigate this risk," Bensaid continued.

"More than 95% of our outlooks on rated GCC corporate and infrastructure firms are stable, attesting to our view that ratings will remain resilient in 2024. However, this also means that we will see limited rating upside this year," Bensaid added.

According to S&P, rating pressure could arise for companies operating in cyclical sectors and making large investments if this leads their leverage metrics to increase. High geopolitical risk in the region poses a risk to companies that depend on investor confidence.