GCC’s total corporate debt put at $212 billion

DUBAI — Unrated corporates from the six GCC countries, which are estimated to have more than $67 billion of total debt outstanding, are likely to pursue debt funding as an alternative to bank debt, Moody’s Investors Service said on Wednesday.

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Published: Thu 16 Sep 2010, 11:21 PM

Last updated: Mon 6 Apr 2015, 11:50 AM

“As companies seek to diversify their funding sources by issuing conventional bonds, sukuks and structured-finance instruments and to extend their debt maturity profiles, demand for new rating requests from Middle Eastern corporates is likely to increase,” Moody’s said in a report.

Unrated companies in the GCC tend to have shorter-term debt maturity profiles and a less diversified debt-funding mix than rated companies, the ratings agency noted.

Of the total $67 billion debt outstanding of unrated corporates, 28 per cent is short-term debt. Including the $145 billion debt for rated entities, the total corporate debt is currently estimated at $212 billion.

The proportion of bank debt for unrated corporates is high, which Moody’s believes makes such corporates more likely to pursue debt funding as an alternative.

Moody’s view is supported by the expectation that banks will continue to judiciously manage their corporate credit exposures, thereby prompting corporates to seek funding in the capital markets.

Moody’s report, entitled “Refinancing Corporate Debt in the Arabian Gulf”, explains the sampling methods that the rating agency used in its analysis of the companies that are likely to tap the capital markets, the characteristics of the resulting universe and the likely debt issuers by industry.

The rating agency specifically concludes that the greatest need to extend short-term debt maturities is among companies in the telecommunications industry, real estate sector and related industries such as construction, as well as investment holding companies.

According to Moody’s findings, unrated companies in Kuwait, Saudi Arabia and the UAE carry more short-term debt on their balance sheets than rated companies. “The reverse is true for Qatari companies, where the proportion of long-term debt is higher than that of short-term debt, albeit by a small margin.” Data for Bahraini and Omani companies were inconclusive.

“The differences in the split between short-term and long-term debt for rated and unrated companies can be explained by the fact that rated companies sought a rating in order to tap the market by issuing longer-dated debt,” said Martin Kohlhase, Assistant Vice President at Moody’s. As unrated issuers seek to lengthen their debt maturity profiles, Moody’s anticipates that many of them will seek to obtain ratings to facilitate an international bond issue.

Many of the unrated companies exclusively carry bank debt (for example, this is the case in Dubai, Saudi Arabia, Oman and Bahrain), while corporates listed in Abu Dhabi, Kuwait and Qatar have a high or very high proportion of bank debt on their books, the report observed.

“The split between bank and capital market debt for rated companies is more even, implying a higher degree of diversified debt instruments. Although asset-heavy industries carry the most debt, their debt maturity profile is long-dated,” Moody’s said.

“The energy and petrochemicals industries are the main sectors where most of the debt is located. This is in line with the region’s characteristics of rated corporates. These two sectors alone represent 40 per cent of the total debt in our sample. However, most of the debt held by unrated companies in these sectors is long-term. For example, only 10 per cent of total debt for the energy sector is short-term debt, while in the petrochemicals sector it represents 14.5 per cent of the total outstanding debt,” said the ratings agency.

Telecoms and construction are the main sectors where most of the short-term debt resides, representing 30 percent of the total short-term debt in our sample. “We estimate that 56 per cent of total telecom debt is short-term. The proportion is even higher for the construction sector where it represents 69 per cent of the total debt.”


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