CGI Gulf Insights of the Week Oct 12 2020

  • ByCGI Gulf Insights of the Week
  • Sunday, 11 October 2020
  • Published inOctober 2020
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Country Risk Update - Saudi Arabia

Risk Indicator  - DB4a
Risk Level        - Moderate

Ratings Trend  Deteriorating 
We have upgraded Saudi Arabia’s rating outlook as oil prices and production have strengthened, but short-term prospects for doing business remain challenging. Weak oil prices over the next five years will see the government forced to liberalise the economy, opening up opportunities for cross-border investment and trade. Longer-term growth will be driven by government reforms under its Vision 2030, which aims to reduce dependence on oil export revenues and boost the private sector.
Market Overview
Islamic syndications become attractive than sukuk in GCC 
Islamic financing (loan) syndications are becoming popular among borrowers in the core Islamic countries such as the GCC Turkey, Malaysia and Indonesia due to their relative simplicity compared to sukuk, according to rating agency Standard & Poor’s. The Islamic syndicated loans market has been modestly outperforming the sukuk market this year. “Although the bulk of syndicated deals totaling more than $50 billion remain conventional, we believe Islamic syndications could increasingly complement traditional financing options. Because such syndications involve a limited number of counterparties, they could support quicker and easier issuance than is the case for sukuk,” said Mohamed Damak, Senior Director & Global Head of Islamic Finance, Financial Services Research, S&P. Islamic countries tend to seek conventional financing in times of crisis.
Dubai's private sector keeps up recovery momentum
The Dubai non-oil private sector continued to keep up the recovery momentum in September with another modest improvement in business conditions, according to the Purchasing Managers’ Index. The IHS Markit PMI data for last month showed overall activity and new business rose at faster rates than in August, with demand growth reaching a ten-month high. As a result, the decline in employment slowed to a moderate pace, while business expectations improved slightly. “September PMI data finalised a third-quarter period of modest economic recovery in Dubai. The PMI has consistently remained above the 50.0 no-change mark since July, as business activity grew during the easing of COVID-19 restrictions,” said David Owen, Economist at IHS Markit. The headline Dubai PMI posted at 51.5 in September, indicating a third successive monthly improvement in the performance of the non-oil private sector. The index rose from 50.9 in August, but remained below that seen in July and markedly down on the series average of 54.7. Nevertheless, the latest survey data indicated stronger increases in both output and new business across the private sector in September. 
COVID-19 to take a heavy toll on GCC bank profits in 2020, says Moody's
Slowing business activity across the GCC from the coronavirus outbreak amplified by falling hydrocarbon revenues are expected to impact the financial performance of banking sector, according to rating agency Moody’s. “The combination [of slowing economies and low oil prices] will impede lending growth, narrow interest margins and lead to a sharp increase in provisioning for bad loans, particularly given the new IFRS 9 expected credit loss accounting regime that requires extensive forward-looking provisioning for souring loans,” said Badis Shubailat, Analyst at Moody’s. The rating agency sees interest margins, the main source of revenue for the banks to narrow as central bank interest rate cuts and higher borrower delinquencies dent yields on lending. At the same time, deposits will cost banks more in interest as lower oil prices slow inflows of government deposits into the banks.
Commodity Tracker
Stock Market Update
CRIF D&B Business Update
Dun & Bradstreet Enters Into Agreement to Acquire Bisnode, a Leading European Data & Analytics Business
Dun & Bradstreet Holdings, Inc. (“Dun & Bradstreet” or the “Company”) (NYSE:DNB), a leading global provider of business decisioning data and analytics, through its subsidiary Dun & Bradstreet Holdings BV, today announced that it has entered into a definitive agreement to purchase the outstanding shares of Bisnode Business Information Group AB (“Bisnode”), a leading European data and analytics firm and long-standing member of the Dun & Bradstreet Worldwide Network. The estimated purchase price upon closing is 7.2B SEK or approximately $818 million USD. The transaction is expected to close in January 2021, subject to required regulatory approvals and customary closing conditions.
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