JEDDAH: Despite the stabilizing trend observed among the Gulf Cooperation Council (GCC) markets, Moody's Investors Service maintains a cautious outlook for GCC corporates in light of recent political developments in the region. In a new Special Comment on 2011 outlook for GCC corporates, David Staples, Moody's Managing Director for Corporate Finance in the GCC and co-author of the report, said though it "believes that GCC corporate credit quality could further stabilize, the rating agency is mindful of the near-term economic impact that regional political instability could have on selected markets and issuers." Overall, the downward ratings trend seen among GCC corporates in 2009-10 has abated, but moderate pressure is likely to continue in 2011, the report noted. "The risk of downgrades remains highest for lower-rated issuers, typically in the non-investment-grade spectrum, due to their need to refinance upcoming debt maturities and in some cases continue restructuring their real estate exposures," Staples added. The stabilizing trend among GCC markets is underpinned by the broader recovery currently underway, in line with Moody's macroeconomic forecast for a continued sluggish rebound among advanced economies in Europe, the Middle East and Africa (EMEA) in 2011. "In the GCC, this trend is particularly driven by the resurgence in commodity prices, particularly in the hydrocarbon and petrochemical sectors," added Martin Kohlhase, a Moody's AVP - analyst and co-author of this report. These developments highlight the importance of these sectors to regional economies and bolster the ability of governments to redistribute resources to investment and social programs. Moody's-rated corporates in the GCC are characterized by a high proportion of GRIs. Consequently, any changes in government support or in the strength and stability of the economic environment in which these issuers operate can have a major impact on ratings. In this respect, Moody's believes that the Dubai-based government-owned companies collectively known as "Dubai Inc." remain a key area of focus given the various challenges these entities face and the options at the government's disposal for addressing their refinancing exposure.
