GCC utilities are relatively protected from deteriorating conditions caused by a sharp drop in oil price and a negative impact from COVID-19 measures, a recent report by S&P Global Ratings showed.

“We expect 5 percent to 10 percent power and water demand rationalization, since some commercial activities haven't returned to normal post lockdown easing and consumers have lower purchasing power and are more cautious around spending, even on necessities,” S&P said.

According to the report, the forecast comes despite many countries in the GCC announcing discounts or payment exemptions on power bills as support measures.

“Most issuers passed this stressed period without negative effects as they benefit from strong government support and availability-based schemes, or high coverage ratios,” S&P added.

Telecommunications and food retails are other sectors that are also relatively protected from deteriorating conditions according to the report.

Weak macroeconomic picture

The agency has taken negative rating actions since mid-March 2020 on about 45 percent of its Middle East corporate and infrastructure portfolio, particularly in the real estate and oil field services sectors.

S&P is generally seeing a weaker macroeconomic picture, negative employment trends and consumer spending, and a softer 2020 across the board, with a focus on preservation rather than growth. It 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.

According to S&P, the most exposed sectors to weaker operating conditions are aviation, tourism, real estate, hospitality, nonstaples retail, and oil and gas.

The report notes however that corporations and infrastructure players in the GCC successfully managed liquidity during the pandemic despite a weak operating environment. (Read more here)

(Reporting by Gerard Aoun; editing by Seban Scaria)

( gerard.aoun@refinitiv.com )

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