GCC firms to stay stable on rebound in oil prices

Moody’s Investors Service said higher oil prices and public spending support a stable outlook for non-financial GCC companies in 2018, but the outlook for companies in Turkey and South Africa was negative.

“Improving oil prices, which are narrowing fiscal deficits, as well as an ongoing commitment to public spending and a supportive stance towards government-related issuers will underpin the stable outlook on GCC companies over the next 12 months,” said Rehan Akbar, vice president at Moody’s Investors Service.

The rating agency said oil prices above US$50 a barrel would allow countries with large fiscal buffers and small populations like the UAE, Kuwait and Qatar, to carry out fiscal reforms at a more measured pace than some of their larger neighbors.

Well established companies in the region are likely to diversify sources of funding and this may lead to an increase in the sales of bonds and shares, it said.

The price of oil, which lost more than two thirds of its value in 2014, has rebounded this year amid supply cuts by the world’s biggest oil producers. Year-to-date, the price of Brent has climbed 12.9 per cent.

The rating agency also said that that fewer growth opportunities in the region would drive GCC companies towards consolidation as well as acquisitions outside of the region even after oil rebounded this year.

Further afield in Turkey, Moody’s said that corporate growth would be moderate in 2018 when the easy monetary policy that gave the economy a boost this year comes to an end.

Meanwhile in South Africa, Moody’s said that political uncertainty amid leadership elections would raise the downside risk for companies in the country. The investors service said that deterioration of the sovereign’s credit quality might weigh on the credit profiles of companies exposed to the domestic economy.