Saudi: Turkey and South Africa Firms Face Negative Outlook Even As GCC Peers See Stable 2018

Higher oil prices and continued public spending support the stable 2018 outlook on non-financial companies in the Gulf Cooperation Council (GCC), said Moody's Investors Service in a report published over the weekend.

Conversely, the 2018 outlook for companies in both Turkey and South Africa is negative.

"Improving oil prices, which are narrowing fiscal deficits, as well as an ongoing commitment to public spending and a supportive stance towards government-related issuers will underpin the stable outlook on GCC companies over the next 12 months," said Rehan Akbar, Vice President – Senior Analyst at Moody's.

"Limited clarity on policy direction and on the pace of implementation of structural economic reforms, as well as political risks and high currency volatility drive the negative 2018 outlook for Turkish companies.

Similarly, the negative outlook for firms in South Africa reflects continued political and policy uncertainty, and depressed business and consumer demand," added Akbar.

Rated GCC corporates are mainly government-related issuers (GRIs), which will continue to benefit from strong competitive positions and government support.

Oil prices above $50/bbl will allow countries with large fiscal buffers and small populations, such as the UAE, Kuwait and Qatar, to implement fiscal reforms at aslower pace than their regional peers, which will in turn support the operating environment in these countries.

Fewer growth opportunities will drive GCC companies toward consolidations and acquisitions outside theregion, as well as investments in increasing vertical integration, and corporate focus on costs.

Mature state-owned corporates are increasingly looking to diversify funding sources, which could lead to an uptick in capital market activity.

Moody's report "Non-financial corporates - Middle East, Turkey and South Africa 2018 Outlook"

further said In Turkey, corporate growth will be moderately lower next year after the accommodative fiscal policy that

temporarily stimulated the Turkish economy in 2017 comes to an end. However, most rated Turkish corporates have healthy balance sheets, strong liquidity and market leadership positions and a good track record of operating in a challenging environment.

Export-oriented manufacturing companies in Turkey will see growth opportunities as demand in Europe

increases, supported by a weaker lira. Companies in the tourism, hospitality and aviation sectors will be

buoyed by improvements in the security situation, but the environment will remain potentially volatile.

In South Africa, the fragile macro environment as well as political and policy uncertainty heighten downside

risks for companies in the country. However, rated firms will remain resilient – but not immune – largely thanks to diversification, market dominance, and healthy credit profiles.

Commodity (e.g., gold, platinum and diamond) exporters will continue on stable to positive trajectories, benefiting from strong momentum in global growth and low US dollar costs due to rand weakness.

Firms' credit metrics will remain largely within current rating bands as companies employ strategies to protect their financial positions. Deterioration in the credit quality of the sovereign could weigh on the credit profiles of corporates exposed to the domestic economy.