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|12 December, 2018

Stable outlook: Government housing push, oil prices and district cooling sector among key points for 2019 - Fitch

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Image used for illustrative purpose. A general view of a housing compound in south of Riyadh.

Image used for illustrative purpose. A general view of a housing compound in south of Riyadh.

REUTERS/Fahad Shadeed

The outlook for the corporate sector in the Gulf Cooperation Council (GCC) region remains stable next year, but the spectre of a global slowdown is likely to put pressure on cash flow next years, according to a new report by the Fitch Ratings agency. (Read the full report here).

Below is a summary of some of the key findings from the ‘Fitch Ratings 2019 Outlook: GCC Corporates’ report:

Fitch observed an increase in the awarding of major sovereign projects to non-government-related entities (GREs), which it described as “a key driver for sovereign investment in the region”.

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The industrials, property and real estate, natural resources and utilities sector have been rated as stable for 2019, mainly due to strong sector fundamentals and favourable oil prices.

In terms of cash flow, Fitch said telecom operators would be neutral, mainly due to good reserves in their domestic markets, but in the real estate and utilities sectors the ratings agency warned that companies would be cash flow negative due to high dividend payments and capex outflows.

While the real estate will remain under pressure, the report highlighted two key pointers: There will increased divergence between prime assets in prime locations versus secondary assets, especially in the United Arab Emirates. Major malls are expected to be some of the key prime assets, with average occupancy rates remaining above 90 percent.

A second key development is GCC governments’ push to increase homeownership among nationals, especially in Abu Dhabi and Saudi Arabia, where the kingdom’s ‘National Transformation Programme 2020’ has set homeownership as one of the key pillars for development.

The GCC telecom sector is expected to maintain investment-grade credit ratings as many of the operators are linked to their country’s sovereign rating, but Fitch raised concerns about “the impact of international exposure and FX mismatches”, especially for Qatar’s Ooredoo.

GCC members are reducing subsidies to water and electricity sectors, but Fitch does not see this having a major impact on the utilities sector. However, Fitch does see growing opportunities in the district cooling sector.

While the oil and gas sector is forecast to remain volatile, but Fitch expects exploration and development investments to remain stable. While OPEC recently announced production cuts, but Fitch said such reductions “should not have a significant impact on earnings”.

(Read the full Fitch Ratings 2019 Outlook: GCC Corporates report here)

Further reading:
•  Monthly markets review: Real estate shares drag UAE markets lower in November, rest of Gulf mixed as oil price drop weighs on investor sentiment 
Dubai property prices sink 7.4% as UAE jobs growth slows 
Double trouble: UAE real estate firms defenceless against oversupply and interest rates 
Oil rises more than 1% on OPEC-led supply cuts, trade talk hopes  
29 UAE firms make Top 100 GCC market cap list in 2018 
Ooredoo continues to expand super fibre coverage 

(Writing by Shane McGinley; Editing by Michael Fahy)
(shane.mcginley@refinitiv.com)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2018

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