The outlook for corporate credit quality in the Gulf is one of stabilization and slow recovery, although some sectors will remain depressed over a longer period.
Moody’s expects corporate credit quality in the region to stabilize and eventually recover slowly as macroeconomic conditions improve in 2010. “Whilst our review of implicit government support assumptions in Abu Dhabi is likely to remain a source of uncertainty initially (we expect to conclude the review in the first quarter), we believe that fundamental corporate credit will stabilize in line with a gradual recovery of the global economy, but also on the back of some more rapidly recovering domestic economies. However, Moody’s highlights that credit conditions in some sectors, particularly real estate, will continue to be challenging for 2010. The same also applies to Dubai, the region’s largest public borrower, where restructuring of certain entities is likely to be a prolonged exercise.”
Real estate companies in Dubai, and to a lesser degree Abu Dhabi and Qatar, are likely to remain under pressure.
“Key challenges remain for the largest developers, particularly the need to develop a business model consistent with long-term market conditions, which remain challenging, as well as general liquidity issues that will require these companies to find alternative sources of financing given the limited ability to access the capital markets and the likely long-term disappearance of off-plan selling.”
Other key themes for 2010:
- Dubai will be preoccupied with addressing its debt maturities for the next 2-3 years, which poses a major medium-term challenge.
- Improving liquidity and extending debt maturity profiles will remain a major challenge.
- Implicit government support will remain under scrutiny.
- Transparency levels at both corporate and government level must improve and insolvency regimes established for investor confidence in the wider region to be fully restored.
- Infrastructure, hydrocarbon and quasi-government entities will drive corporate issuance in 2010.
For details see Arabian Gulf Corporate Credit: 2009 Review and 2010 Outlook (Premium)
Technorati Tags: Arab Gulf countries, Dubai, Gulf Cooperation Council, infrastructure, sukuk
KPMG has issued a useful summary and outlook for road infrastructure projects in the US, Canada and Mexico through 2013. All three countries have ambitious infrastructure stimulus plans in the works.
In the US, California, Florida, and Texas lead the states in terms of combined public and private investment in road infrastructure and are projected to maintain their dominance through the medium run.
Among other aspects, the report looks at the growing involvement of private investment:
- Virginia, Texas, and Florida have been the dominant players when it comes to utilizing private investment to fund new capacity.
- The City of Chicago and the State of Indiana have led the way in terms of private sector investment in operation and maintenance of existing assets.
- In the lead up to 2013, states like California, New York, Georgia, Nevada, and Michigan are looking very seriously at joining the list of states using private investment for road infrastructure.
A strong appetite for alternative funding and development models such as public-private partnerships is also found in Canada. Several road and transit-related projects have been developed as PPPs, with more envisioned for the future.
Road expenditure in Mexico is predicted to shrink by an average of 8.6 percent per annum between 2009 and 2013, despite a “National Infrastructure Program” launched in 2007 that is expected to result in billions of U.S. dollars in additional investment across the country.
Global infrastructure trend monitor: North American roads edition — Outlook 2009–2013.
Technorati Tags: infrastructure, PPP, public private partnerships, toll-roads, transportation
Oxford Analytica questions the efficacy of fiscal stimulus plans in a new report, Global integration limits fiscal policy.
“Many governments in mature economies are adopting highly expansionary fiscal policies in response to the global economic crisis,” OxAn says.
This approach is highly controversial, and economic theory does not clearly support its potential to stimulate recovery.
“Government fiscal stimuli clearly stimulate economic growth, especially if targeted at groups with a low propensity to save, and on areas of the economy where government spending is most effective, such as infrastructure development. However, there are several reasons why policy attempts so far might not work, including the uncertain effect of shortening the individuals’ economic horizons during crisis, and the rise of a global economy without the emergence of the coordinating policy institutions.”
Technorati Tags: economic-policy, infrastructure, stimulus
A survey of executives by Boston Consulting Group finds that they think the US is losing its distinction as an innovation leader. The survey, carried out in conjunction with the Manufacturing Institute and the National Association of Manufacturers, says the US is disadvantaged in a number of ways, including workforce quality and in economic, immigration and infrastructure policy.
The US currently ranks eighth on BCG’s innovation ranking of countries, and second among large countries, behind South Korea.
BCG’s free report The Innovation Imperative in Manufacturing offers a number of recommendations for including a more active government role through consistent policies that encourage innovation.
Technorati Tags: economic-policy, infrastructure, innovation, manufacturing
The Obama Administration should take some comfort from the OECD’s prescription for long-term economic growth, which largely endorses much of the thrust of Obama’s stimulus plan and budget proposal.
The current crisis offers governments the opportunity of combining emergency action with the important structural reforms needed to improve long-term growth and resilience in their economies, the OECD says in Economic Policy Reforms: Going for Growth 2009.
The debacle in financial markets does not call into question the beneficial effects of recommended reforms of product and labour markets.
Going for Growth identifies key reforms to raise living standards in each OECD country. It points out that a number of policies, if carefully implemented, can both boost demand in the short term to soften the impact of the recession, and also raise economic growth over the long term.
This ‘double dividend’ is achievable by pursuing policies in a number of areas. They include:
- Introducing infrastructure projects that can be brought onstream quickly or improve the quality of existing facilities, particularly in education.
- Boosting spending on training programmes to give workers skills that will be needed as the labour market recovers.
- Cutting taxes on labour income, particularly for those with low wages. This will help boost consumption and improve long-term job prospects.
- Reform anti-competitive regulations in product markets. Obstacles to businesses entering new markets should be reduced to stimulate the creation of new products and businesses, so boosting demand. Over the long-term stronger competition will help raise productivity and living standards.
In the past, the erection of import barriers in the 1930s helped to transform a downturn into the Great Depression, and responses to the crisis in the 1970s that were intended to reduce unemployment with early retirement schemes damaged European growth.
State aid to help non-financial sectors risks delaying necessary adjustments to new economic circumstances and creating costly dependence on public support. If such measures are taken, they should be phased out quickly, the report says.
Technorati Tags: bank bailout, economic-policy, infrastructure, OECD, stimulus, trade, US-economy
Fitch Ratings says that the outlooks for global infrastructure and project finance sectors and regions will be more convergent in 2009, with less differentiation than last year, as the economic downturn now appears to be globally synchronised and severe.
Shorter-term economic uncertainty now points to material longer-term declines in both asset values and credit quality than was predicted in Fitch’s first global infrastructure and project finance outlook in March 2008.
Fitch still believes that the relative stability of project and infrastructure fundamentals will cushion the adverse effects of the turbulent global economy, which is likely to continue beyond 2009.The long-term contractual nature of financial and commercial arrangements, and the structural protections usually present in project finance debt, including the use of stress-testing prior to the assignment of the rating, also provide additional margins of protection.
However, the sector and its ratings are not immune. A key factor for rating stability will be the length and depth of the current downturn – evidence of stress has already appeared in transactions dependent upon volume or price linked to levels of economic activity such as US transportation, and Fitch anticipates that transactions will be tested beyond 2008 expectations.
Sectors exposed to consumption or discretionary spending will likely be the most vulnerable with regional differences less pronounced due to the global nature of the recession.
Furthermore, across sectors and regions, projects with limited leverage, strong covenants and structural protections, and strong committed sponsors with long-term strategies are likely to be more resilient than others. Fitch expects that when new funding is available, the terms will be far more stringent and creditor-friendly than was the case in the past few years.
The full report, Global Infrastructure & Project Finance Outlook 2009 is available for purchase.
Technorati Tags: airports, health care, infrastructure, Power, public-finance, transportation
The US unemployment rate could rise into double digits by next year despite President-elect Barack Obama’s proposed stimulus package, according to Oxford Analytica.
The chair-designate of Obama’s Council of Economic Advisers, Christina Romer, on January 10 estimated that the unemployment rate could peak next year at 8.8-11.0%, in the absence of Obama’s proposed economic stimulus package.
Romer estimates that the stimulus plan will create at least 3 million new jobs. However, given that employers are likely to slash payrolls by at least 5.0 million over the course of recession (a figure that could go much higher) and that 5.4 million US residents are already drawing unemployment insurance, ‘mass unemployment’ is likely to create serious economic and policy challenges through 2010, OxAn says in UNITED STATES: Unemployment will surge through 2010.
“While New Deal-inspired infrastructure spending will help to reduce unemployment among blue collar workers, and redress decades of underinvestment in public works, it leaves one major challenge unaddressed: unemployed middle-class professionals. Most of these individuals have had little experience of unemployment, and may face significant challenges in retraining. New Deal-model retraining programmes are unlikely to help them.”
While increased infrastructure spending may be apposite, Washington appears unprepared to deal with the welfare and retraining challenges of mass unemployment.
Technorati Tags: infrastructure, unemployment
Despite all the talk about infrastructure investment, corporate executives around the world appear unconvinced that sufficient funds will be forthcoming to support their growth needs.
The majority of C-level executives (77 percent) surveyed for KPMG International believe that the current level of infrastructure investment is insufficient to help sustain the long-term growth of their organizations. Only 14 percent of business leaders globally believe the infrastructure currently available to support their organizations is completely adequate.
Analysts estimate that two trillion dollars will be spent on infrastructure globally on an annual basis until 2015. However, executives in every region expressed concern that infrastructure investment would not be adequate. While business leaders in Eastern Europe and Asia Pacific were most focused on the issue, with 89 and 84 percent of business executives, respectively, expressing concern, the study reported a high level of concern as well in mature markets with 74 and 64 percent of executives respectively in the United States and Western Europe expressing the same opinion.
Two-thirds (66 percent) of executives in the KPMG survey reported that both transportation and energy/power supply infrastructure are resulting in increased operating costs for their business.
The KPMG survey, conducted by the Economist Intelligence Unit, also revealed that:
- Senior executives believe infrastructure will be rising in importance over the next five years;
- The availability and quality of infrastructure will directly affect where these executives locate and expand business operations;
- The business leaders believe governments should partner with the private sector to finance and administer major infrastructure projects;
- Roads and power generation are the most urgent infrastructure needs, say the majority of business leaders surveyed globally.
Click here for the full free report.
Technorati Tags: infrastructure
As a companion to Standard & Poor’s updating of state credit ratings and outlooks, the Pew Center’s “State of the States 2009” report is worth a look.
The report highlights the significant budget trade-offs that states are making in light of the recession and explains how the new administration and Congress are likely to affect state policy. Issues covered include:
- Recession trends – “The year after a recession ends is typically when state budgets are hit hardest.”
- Education – “States traditionally have been reluctant to cut school funding during hard times…This time, up against the worst economic crisis in decades, schools are not immune.”
- Corrections – “Criminal justice reform – for years a controversial issue for legislators wary of being labeled ‘soft on crime’ – is finding new proponents as public officials seek ways to save money.”
In a word, the future is ominous.- Kentucky Gov. Steve Beshear (D).
- Energy – “After being in the forefront of energy and environmental policymaking for nearly a decade, states may be thrust into a more subordinate role in 2009.”
- Infrastructure – “By 2055, as much as $338 billion a year could be needed to maintain the nation’s transportation system.”
- Medicaid – “Even before the recession, states struggled to pay their share of $330 billion in fiscal 2007 for Medicaid coverage for more than 59 million low-income Americans and $8.6 billion for 7 million children and parents covered by the State Children’s Health Insurance Program.”
One interesting if discouraging tidbit from the report: many states participate in a greenhouse gas reduction initiative. Texas, the largest emitter of carbon dioxide by far, is not one of them.
Technorati Tags: education, energy, greenhouse-gases, Healthcare, infrastructure, prisons, states
As a new era in American politics arrives with the inauguration of President Barack Obama, it is worth taking a snapshot of the finances of US States before the impact of new economic and fiscal policies, especially financial stimulus and infrastructure development plans. Standard & Poor’s has obliged with an updated list of state credit ratings and outlooks showing that 24% of the states are now ranked AAA. Among those, all have a Stable outlook, except Florida which was downgraded to Negative yesterday. S&P also issued a listing of credit ratings histories by state.
The weakest ratings are currently held by California (A+, on Negative Watch) and Louisiana (A+, Stable.)
It will be interesting to see how this chart will change over the next year.
Technorati Tags: credit-ratings, infrastructure, municipal-bonds, states
