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Global Credit Research - 19 Mar 2012
London, 19 March 2012 -- Over the short term, the ratings of non-financial corporates
in Gulf Co-operation Council (GCC) countries will be mostly unaffected
by European banks' gradual withdrawal from the region, says
Moody's Investors Service in a new report on this sector.
However, Moody's explains that corporates with lower ratings
will be most vulnerable to the withdrawal of funding, which will
become more costly and conditional overall.
The retrenchment by European banks from the region has been prompted by
the ongoing euro area debt crisis and the banks' need to deleverage
and build up capital buffers. This has potential implications for
GCC banking systems and by extension also for local corporates,
which are typically heavily reliant on bank financing and face significant
maturity redemptions over the next few years.
Although corporates in the GCC region face sizeable funding requirements,
Moody's expects the credit impact on most rated issuers to be limited
over the near term. This is because most the 24 Moody's-rated
GCC corporates are highly rated government-related issuers (GRIs)
that have strengthened their liquidity profiles over recent years and
proactively addressed near-term maturities by extending their debt
Nonetheless, the exposure of rated GCC corporates to European banking
institutions is significant, with an estimated 34% share
of the total bank lending to Moody's-rated corporates.
In Moody's view, a retrenchment of European banks will not
lead to an abrupt liquidity shock over the short term; however,
a more sustained withdrawal of European banks could generate a longer-term
structural funding shortfall. This is likely to further encourage
the ongoing trend among rated issuers to diversify their funding sources,
including through increased capital market issuance, in both conventional
and Islamic forms.
Rated issuers at the low end of Moody's rating scale are the most
vulnerable to a potential funding withdrawal as they are heavily reliant
on credit lines from banks to meet their day-to-day financing
needs, to address significant upcoming maturities and to amend imbalanced
Funding will become more costly and come with more strings attached.
The potentially most negative factors that we are monitoring are (1) the
impact of higher lending costs on cash flows and profitability,
and (2) in some cases, the potential for an increase in the prevalence
of secured or collateralised forms of lending, which could lead
existing unsecured creditors to become subordinated.
The new report, entitled "GCC Corporates Limited Near-Term
Rating Impact Expected from European Banks' Retrenchment"
is now available on www.moodys.com.
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Corporate Finance Group
Moody's Investors Services Limited, Dubai Branch
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
Telephone: 00971 4237 9536
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Moody's: GCC corporate ratings unaffected over short term by European banks' retrenchment
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
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