Moody's devalues Saudi debt: Gulf distressed debt deals may rise

The credit ratings agency has cut its outlook for sovereigns and companies in the Arab world's biggest economy.

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    The oil-rich Persian Gulf is facing a prolonged downturn as the coronavirus pandemic and a historic crash in oil prices add to pressure on already strained finances [File: Bloomberg]
    The oil-rich Persian Gulf is facing a prolonged downturn as the coronavirus pandemic and a historic crash in oil prices add to pressure on already strained finances [File: Bloomberg]

    The fallout of the coronavirus and oil-price collapse will offer a once-in-a decade opportunity for distressed debt investors in the Persian Gulf, according to Sancta Capital Group Ltd.

    "2020 will present us with the most lucrative deep value and distressed debt investment opportunity set since the global financial crisis," Chief Executive Officer Ahmad Alanani said in an interview in Dubai. "We have been refining an extensive target list of credits and equities in which to invest opportunistically and we expect that list to continue to grow."

    The retail, healthcare, education and real estate sectors will offer the most opportunities, he said. Sancta Capital invests in the debt and equity of under-performing corporates.

    The coronavirus is triggering waves of corporate stress and credit rating downgrades as multiple countries enforce nationwide lockdowns. Many distressed assets funds across the globe have been raising additional cash from investors to buy debt of indebted companies that are struggling because of the economic fallout of the corona virus.

    Prolonged Downturn

    The oil-rich Persian Gulf is facing a prolonged downturn as the pandemic and a historic crash in oil prices add to pressure on already strained finances. Moody's Investors Service has cut its outlook and ratings for sovereigns and companies from Saudi Arabia, the Arab world's biggest economy, to Emaar Properties PJSC, one of the region's largest listed developers, and port operator DP World.

    The region is likely to go through a fresh wave of corporate restructuring, especially in sectors with overcapacity such as tourism, hospitality, and entertainment, according to Sancta Capital's Chief Investment Officer Gus Chehayeb.

    "Fear, panic selling, and economic contraction will eventually make way for bargain hunting, asset reflation, and economic recovery," he said.

    Sancta Capital recently bought bonds in major regional retail and real estate companies, which are trading at "bargain prices," Alanani said. The company also plans to buy the debt obligations of educational firms and hotel operators that may be forced to restructure.

    On top of the impact of low oil prices and the virus, Gulf companies are facing other challenges, which offer opportunities for distressed debt investors. Developers such as Emaar have been hit by a drawn-out property slump, while the United Arab Emirates' largest hospital operator, NMC Health Plc, was last month placed in administration following allegations of fraud, leaving creditors with $6.6 billion in unpaid debt.

    Sancta Capital, which has offices in Houston and Dubai, has $130 million of assets under management in mainly the U.A.E., Kuwait, Egypt and Saudi Arabia.

    SOURCE: Bloomberg