Diplomatic row a risk for GCC members’ credit outlook, Moody’s says

Saudi Arabia, Egypt, the UAE and Bahrain cut diplomatic and trade ties with Qatar in June, accusing the country of supporting and funding terrorism. Above, the Doha corniche. (AFP)
Updated 13 September 2017
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Diplomatic row a risk for GCC members’ credit outlook, Moody’s says

DUBAI: The diplomatic dispute between Qatar and its neighbors, including members of the Gulf Cooperation Council (GCC), is detrimental to the credit outlook for all GCC countries, with Doha and Bahrain being most exposed, Moody’s Investors Service said in a report on Wednesday.
“The severity of the diplomatic dispute between Gulf countries is unprecedented, which magnifies the uncertainty over the ultimate economic, fiscal and social impact on the GCC as a whole,” said Steffen Dyck, Moody’s Vice President — Senior Credit Officer and co-author of the report.
“While we expect the GCC to overcome its divisions, tensions persisting — or even escalating — would be the most credit negative for Qatar and Bahrain.”
Saudi Arabia, Egypt, the UAE and Bahrain cut diplomatic and trade ties with Qatar in June, accusing the government of supporting and funding terrorism, an allegation that Doha has denied.
Qatar faces large economic, financial and social costs stemming from related travel and trade restrictions more than three months since the diplomatic row began, Moody’s said, and the country’s future credit trajectory will depend heavily on the evolution of the dispute.
The impact to-date has been most acute for the trade, tourism and banking sectors with capital outflow estimated at $30 billion between June and July, and expected to further widen as GCC banks have opted not to roll over their deposits, Moody’s said.
The ratings agency also estimated that Qatar deployed $38.5 billion, equivalent to 23 percent of the Gulf state’s GDP, to support the economy in the two first months of the sanctions.
“Although negative foreign investor sentiment has also increased Qatar’s financing costs and led to capital outflows, Moody’s does not expect Qatar to raise funds in the international capital markets this year. This should cushion Qatar against higher funding costs for the time being,” it said.
Bahrain, however, is most vulnerable should the regional tension escalate, Moody’s said.
“Rising debt, increased issuance from other GCC sovereigns, and rising US interest rates have put pressure on Bahrain’s financing costs since 2014. The broad-based deterioration of Bahrain’s credit profile and its diminished shock absorption capacity makes it susceptible to any reassessment of risk by foreign investors.”
Manama’s strong alliance with Saudi Arabia and the UAE, which have provided support in the past, mitigates this risk to some extent, Moody’s said, although the “form and timeliness of such support lacks clarity.”
“The tensions highlight intra-GCC divisions, and although Moody’s believes that a realignment within the GCC is unlikely, the diplomatic rift will inevitably impair the functioning of the grouping, the more so the longer it persists,” the ratings agency said.


Dubai Aerospace signs $480 million loan deal

Updated 9 min 50 sec ago
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Dubai Aerospace signs $480 million loan deal

DUBAI: Dubai Aerospace Enterprise (DAE), one of the world’s largest aircraft lessors, said on Monday it had signed a four-year loan deal for $480 million.
DAE, a government-controlled company set up in 2006, has become one of the world’s largest aircraft lessors after acquiring Dublin-based AWAS last year.
The acquisition tripled the Dubai aircraft leasing and maintenance company’s portfolio to about 400 aircraft worth more than $14 billion.
The $480 million loan, which includes both conventional and Islamic finance tranches, has a so-called “accordion facility” allowing it to be increased to up to $800 million.
With the loan, the company’s unsecured revolving credit facilities increase to between $1.125 billion and $1.445 billion, depending on final size of the latest deal, Firoz Tararpore, DAE’s chief executive, said in a statement.
“On a pro forma basis as of December 2017, if this facility is fully drawn and if the proceeds are used to pay down secured indebtedness, DAE’s percentage of unsecured debt would increase from 26 percent to a range of 31-34 percent.”
Last year, the company issued $2.3 billion in senior bonds split across three tranches last year, partly to finance the AWAS acquisition.
Tarapore said in an interview last week that DAE was in talks to buy a near-record total of 400 jetliners from Airbus and Boeing in an order that could be worth more than $40 billion at list prices.
Al Ahli Bank of Kuwait coordinated the latest loan deal and was also the lead arranger and joint bookrunner together with First Abu Dhabi Bank, while Noor Bank joined the deal as lead arranger.