Leading companies across the Emirates without formal credit ratings face a Dh35.6 billion (US$9.69bn) wall of maturing debt, Moody's Investors Service says. A high proportion of bank debt owed by unrated companies in the GCC could encourage them to sell bonds or other debt instruments, Moody's said. "This 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," the ratings agency said.
Unrated companies from the six GCC countries had more than $67bn of total debt outstanding compared with $145bn for rated corporates. A total of 28 per cent of the unrated corporate debt was short term. Traditional funding avenues such as bank credit have become less easy to access for many companies as lenders tighten credit lines to reduce their risk exposure after the global financial crisis. Bank lending in the region has remained largely sluggish as a result.
Historically, debt securities in the Gulf have remained largely untapped. Governments, government-related entities and other large companies have been responsible for most bond sales. But a well-established debt market is seen as a way of offering borrowers greater flexibility and a wider range of funding sources. It can also help reduce companies' reliance on short-term bank finance. To issue an international bond, companies need to obtain a rating from a recognised ratings agency.
"Moody's anticipates increased demand for new rating requests from Middle-Eastern corporates after the end of Ramadan, as companies continue to seek to diversify their funding sources by issuing conventional bonds, sukuks and structured-finance instruments, and to extend their debt maturity profiles," it said. The need to reduce near-term liquidity pressures and possibly reduce funding costs were other reasons that may encourage companies to increase their funding sources, Moody's said.
Among the top 10 publicly quoted unrated UAE companies, Abu Dhabi firms had Dh21.7bn of debt and Dubai firms had Dh13.9bn, Moody's said. Unrated companies in Kuwait, Saudi Arabia and the UAE carried more short-term debt on their balance sheets than rated companies. "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," Moody's said.
Across the region, unrated companies in Dubai had the largest proportion of total short-term debt, with 66.26 per cent. And 51.1 per cent of the debt of unrated Abu Dhabi companies was short term, it said. Telecommunications firms, property and construction companies and investment holding companies had the greatest need to extend short-term debt maturities, the ratings agency said. @Email:tarnold@thenational.ae