The 2020 outlook for non-financial corporates in the Gulf Cooperation Council (GCC), Turkey and South Africa is negative, Moody's Investors Service said.

The outlook for GCC non-financial corporates has changed to negative from stable, while it remained unchanged for Turkish and South African non-financial corporates.

According to Moody’s, GCC corporates were assigned a negative outlook due to : low non-oil GDP growth and heightened geopolitical tensions that weigh on investor sentiment and consumer confidence; volatile oil prices that limit governments’ ability to fund growth initiatives.

Factors that could change Moody’s rating on GCC corporates to stable are: supportive oil prices resulting in narrowing fiscal deficits; stronger commitment towards public spending; supportive stance towards government-related issuers. (GRIs)

A positive outlook would require high oil prices that are sustainably above fiscal break-even and strong growth momentum in non-hydrocarbon sectors, Moody’s said.

While low non-oil GDP will drive a deterioration in credit conditions, the credit quality of most rated corporates will not erode much due to healthy balance sheets, dominant market positions and adequate liquidity, the ratings agency noted.

According to Moody’s, the below trends could dominate certain sectors in 2020:

  • GCC construction, real estate and retail companies to continue to suffer from oversupply
  • Expo 2020 to provide a boost to the United Arab Emirates’ tourism and hospitality sectors
  • Slowing GCC electricity demand to support the free cash flow of utilities as a result of lower investment needs
  • Telecoms’ sector growth to be driven by the entry into 5G technologies and B2B services

(Writing by Gerard Aoun; editing by Seban Scaria)


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© ZAWYA 2019