Fitch Ratings-London-23 November 2010: Fitch Ratings says investor sentiment has improved towards the Gulf Cooperation Council (GCC) on the back of the global economic recovery, stabilisation of the financial sector and the concrete steps being taken by the authorities in the region, particularly the U.A.E. However, uncertainty remains with regards to the liquidity and funding arrangements of certain state-related entities in Dubai.
“Ongoing funding needs for both new projects and refinancing will ensure that GCC corporate issuers are likely to remain active in international debt markets,” says Raymond Hill, Senior Director in Fitch’s EMEA Corporate team “As long as market conditions are supportive issuers should be active in both bond and sukuk issuance through 2011.”
Corporate issuers with strong credit fundamentals, including state linkage across the GCC, are now able to access competitively priced long-term funding. Recent successful funding activity by rated corporate issuers across the region include: Saudi Basic Industries Corporation (‘SABIC’; ‘A+’/Stable) attracting five-year funds, Dubai Electricity and Water Authority (‘DEWA’; ‘BBB-‘/Negative), raising five- and 10- year money, Qatar Telecom (Q-Tel; ‘A+’/Stable) attracting six-, 10- and 15-year money and International Petroleum Investment Company (IPIC; ‘AA’/Stable) raising five- and 10-year money.
Investors have risk appetite for private corporate debt in the GCC, with the oil industry appearing to be viewed as a more attractive home for investment than post- bubble real estate. Oman’s MB Holding Company LLC (‘BB-‘/Rating Watch Negative) recently successfully placed a USD320m five-year high yield issue with a coupon of 11.25%.
However, even after the successful conclusion of the Dubai World (DW) debt restructuring uncertainty remains with regards to the resolution of the liquidity and funding challenges faced by other state-related entities in Dubai such as the Dubai Holding group, which includes Dubai Holding Commercial Operations Group (DHCOG; ‘B+’/Rating Watch Negative). Fitch’s rating for DHCOG continues to reflect some expectation of state support.