Corporations and infrastructure players in the GCC successfully managed liquidity during the pandemic despite a weak operating environment. However, a severe global credit downturn caused by the COVID-19 pandemic has affected the scope of recovery of many sectors in the economy, leading to negative employment trends and consumer spending, global ratings agency S&P said in a report.
As soon as the possibility of a lock down became a reality, a number of corporates fully drew their available revolving credit facilities to hold on to cash and manage uncertainty around the pandemic and business continuity.
"As a result, 42 percent of our liquidity assessments are strong and 48 percent are adequate, despite the weak operating environment," the report noted.
S&P Credit analyst Timucin Engin, said: “Since mid-March, we have taken negative rating actions on 16 rated regional players, mostly amid increased pressure from the global pandemic and a sharp fall in hydrocarbon prices, and significantly lowered our economic growth forecasts for the GCC countries.”
The global ratings agency expects a mid-to-high single digit real GDP contraction for most rated GCC sovereigns in 2020 and operating conditions to remain weak over the next few quarters.
“As a result, most regional companies' earnings and revenue will be hit, and we have even slightly lowered topline forecasts for relatively more resilient sectors, such as telecom, due to an overall weaker macroeconomic picture and subdued population trends,” S&P said in its report.
Exposed sectors
Aviation, tourism, real estate, hospitality, non-staples retail, and oil and gas are the most exposed sectors, while telecommunications, utilities, and food retailers are relatively protected from deteriorating conditions.
S&P anticipates significant weakening in rated real estate companies' credit ratios this year due to lingering over supply and softer demand, with only a slow recovery in 2021.
"We expect Dubai real estate to remain under pressure in 2020 with only a partial potential recovery in 2021, which may be slow and painful given the significant oversupply in all segments even prior to the pandemic," said S&P Global Ratings credit analyst Sapna Jagtiani.
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Expectations of a global macro-recessionary environment and the implications of stay-at-home orders and limited movement have translated into a demand shock for the oil and gas sector in 2020 especially from the transportation and aviation industries.
As these restrictions are eased, we expect to see some signs of recovery in consumption toward year-end 2020. In our view, supply will follow agreed cuts under the OPEC+ agreement, while oil and gas players will generally be more cost cautious regarding spending amid subdued oil prices.
S&P Global Ratings credit analyst Rawan Oueidat, said: "We expect a more cautious spending approach from oil and gas players, with capital expenditure cuts and downward revisions from 2020 guidance already announced so far.”
“However, GCC national oil companies should benefit from their cost advantage compared with global peers in the low oil price environment," he added.
Oil prices fell on Wednesday as industry data showed a bigger-than-expected inventory build in the US, where rise coronavirus cases may further dent fuel demand in the country. Brent crude fell 35 cents, or 0.8 percent, to $43.97 a barrel.
(Reporting by Seban Scaria; editing by Daniel Luiz)
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