News Column

GCC corporates headed to capital markets for longer term funding

August 24, 2014

Babu Das Augustine Deputy Business Editor

Dubai: Post global financial crisis, corporates from the Gulf Cooperation Council (GCC) countries are increasingly seeing benefits of seeking longer term funding through both debt and equity capital issuance, said Stuart Anderson, Managing Director & Regional Head Middle East of Standard& Poor's.

The overall positive economic environment in these countries, combined with the lessons learned during the financial crisis and recent market reforms are encouraging many corporates in the region to seek capital market funding.

While government-related entities [GREs] are looking at diversifying their funding sources through capital market issuance, Anderson expects medium-size corporates to be the big game changers in terms of debt and equity issuance from the region.

S&P has been witnessing a substantial surge in demand for corporate credit ratings in the region. While some companies have been seeking public rating, a good number of regional firms have been obtaining confidential ratings. "In many cases, public ratings start as confidential ratings and eventually when the company managements see the results of these confidential ratings they choose to go public," said Anderson.

Historically, corporates lagged in getting ratings while regional sovereigns, GREs, banks and insures have actively sought credit ratings. The recent trends in corporates seeking confidential ratings suggests that the regional corporates want to have more strategic approach to their financial management and innovative in their funding strategies.

Many do it [confidential rating] for internal benchmarking of financial discipline and risk management. Although, objectives differ ultimately ratings become an added advantage when they look at the markets for funding," said Anderson.

Combination of debt and equity

In addition a significant number of companies in the region are also looking to restructure balance sheets; some of them are dealing with issues such as succession and monetisation of family wealth where a combination debt and equity becomes handy.

There are also a lot of successful companies which need to fund themselves for growth particularly as they expand regionally. Many business groups are still under-geared and there is big scope for long term debt structures that fit their balance sheets. Corporates who are seeking regional and international equity listings also see value in credit rating.

"In recent months we had number of discussions with regional groups who are going to the equity markets but not necessarily going to list in any of the regional markets. One we recently had discussions is going to New York so are many who are already listed outside or are planning to list on international markets. Rating is important for them. Even those who are going to private equity see value in rating," he said.

A number of these companies that have new generation chief financial officers (CFOs) are favouring longer term unsecured funding sources to bank financing whose availability is largely a function of liquidity in the market. Low interest rates, positive economic scenario, growing demand for Islamic asset classes, and the continued need for infrastructure investment in the GCC are expected to fuel bond/sukuk growth in the region.

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Source: Gulf News (United Arab Emirates)

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