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Announcement:

Moody's: GCC corporate ratings unaffected over short term by European banks' retrenchment

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 maturity profiles.

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 capital structures.

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.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Franck Nowak
Analyst
Corporate Finance Group
Moody's Investors Services Limited, Dubai Branch
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
Telephone: 00971 4237 9536

David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: GCC corporate ratings unaffected over short term by European banks' retrenchment
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

 


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MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

 


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© 2014 Moody's Investors Service, Inc., Moody’s Analytics, Inc. and/or their affiliates and licensors. All rights reserved.
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