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Fund Folio
{ Corporate finance }
Debt
challenge
The Gulf’s credit quality
declines as SWFs shun bailouts
of distressed companies
COMPANIES in the Gulf Arab states are seen
to accept a more expensive funding in
exchange for better long-term liquidity, as
they will struggle to refinance maturing debt
instruments, and the state-owned investment
funds remain to be passive long-term investors. This will
not change the rating activity for companies while the
world’s sovereign wealth funds (SWFs) wait for better value
later in the year before making new investments.
“In turn, we see new rating activity remaining steady
with greater need for differentiation of credit risk, and
in line with companies’ attempts to lock in liquidity as
it becomes available,” said Moody’s Investors Service in
a corporate finance outlook. The global rating agency
also described the overall credit quality in the Gulf
Co-operation Council (GCC) as having “declined”, and said
this is “likely to continue to do so going forward”.
The SWFs, according to the Financial Dynamics
International, are interested to acquire minority stakes
in listed companies without playing any management
role. While they see Brazil, China and some countries
in Central America as the most attractive regions for
investments, the SWFs are likely to divert cash inflows
from their global portfolios towards their home countries
and regions, in order to add stability and economic
stimulus to the local markets.
POOR CREDIT
About $40 billion worth of debt instruments will mature
in the GCC this year, giving a “significant challenge” to
businesses. The UAE accounts for $20 billion, including
the $15 billion for Dubai, of the total amount. Since
access to equity markets dried up last year, the bulk
of corporate fund-raising in the UAE used syndicated
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