The outlook for GCC corporates is neutral for 2023, reflecting supportive economic activity and high oil prices, Fitch Ratings said in a new report.

"Oil-exporting countries have witnessed improved fiscal budgets and we expect government-sponsored projects to stimulate private-sector activity."

The ratings agency expects to see retail, homebuilders and industrials facing more challenges than others as inflation affects raw-materials prices and cost of living. National oil companies, utilities and property companies have ample liquidity buffers, supported by leverage headroom and strong EBITDA generation.

The overall sector is stable with 82% of issuers on stable outlook, while another 11% of issuers primarily government-related entities (GREs) are on positive outlook due to sovereign linkage.

"We forecast a marginal increase in median leverage to 3x in 2023 from an average 2.8x in 2021-2022, due to strong cash generation to fund capex. We expect EBITDA growth to outpace growing interest expense for Fitch-rated issuers, with interest cover averaging 6x in 2023. Key differentiating factors across sub-sectors will be refinancing risks, funding base and financial flexibility for issuers."

Companies remain generally well-funded with ample cash build-up to finance growth. However, this will put free cash flow (FCF) margins under pressure as we factor in shareholder distributions.

In addition, overall visibility on corporates spending is limited by a possible shift in financial policies linked to regional macroeconomic factors. Project pipelines and government spending will determine private-sector growth in 2023.

(Writing by Brinda Darasha; editing by Daniel Luiz)