Arabian Gulf corporates face challenge of 2012 ‘Wall of Maturity’

The credit environment for corporate issuers in the Gulf Cooperation Council region will remain challenging, especially for selected vulnerable corporate issuers that need to address significant debt maturities by 2012, Moody's Investors Service said in a new report on the GCC corporate sector.
"The 2012 wall of maturing debt poses a major challenge for GCC corporate as US$ 28 bln worth of debt — nearly one fifth of an estimated US$ 145 bln of total debt outstanding — will mature that year," explained Martin Kohlhase, analyst at Moody's Middle East in Dubai. The majority of this maturing debt is held by entities based in Dubai and Abu Dhabi, especially investment holding companies and real estate developers and related companies.
"Moody's notes the apparent lack of a catalyst that could stabilise the credit environment in the region," said Kohlhase. A stabilisation would require a number of soft and hard factors to come into play. The main soft factors involve restoring confidence and improving transparency through greater public disclosure. The hard factors that could provide the impetus for a broader stabilisation include: an improved regulatory framework, especially the insolvency regime; macroeconomic stabilisation; and greater capital market access and a resumption of bank lending.
Moody's characterises vulnerable issuers as those that are facing a difficult operating environment, as determined in particular by their competitive position. Additionally, vulnerable issuers tend to have highly leveraged capital structures and their ratings tend to be in the B category.
Based on its 12- to 18-month forward-looking liquidity analysis, Moody's highlighted that GCC issuers' prospects in 2012 will be determined by their ability to (1) roll over short-term maturities (less than one year), aided by long-standing relations with entrenched banks; (2) address upcoming bullet repayments, which are as high as 95% of all debt outstanding in one particular case; and (3) stabilise/improve their operating performance. These three apply more to issuers that do not benefit from government support as well as government-related issuers (GRIs) with low support assumptions, than to GRIs that have robust business plans and are able to execute them to stabilise, if not improve, their operating performance. This holds true for many issuers with high exposure to the real estate market.
The Moody's report identifies three common themes that cut across industries: liquidity, management of the capital structure as well as support from governments (where applicable).
"Moody's views real estate developers ('pure' plays such as Aldar, DAAR and Emaar) and those issuers with a high exposure to the real estate market (DHCOG, GGICO) as vulnerable due to overcapacities that are likely to persist for the foreseeable future," said Kohlhase. Investment holding companies are subject to market volatility and risks associated with the quality of underlying assets. In this respect, utilities are viewed as regulated utilities — which mostly operate natural monopolies — but the rating agency notes that telecom operators face an element of event risk as they are likely to continue pursuing an acquisitive strategy.