GCC chemical producers cope with stress without rating downgrades: S&P

Chemical companies in the Gulf are likely to cope relatively well with the current stresses of rising interest rates and higher energy costs, S&P Global said in a recent report.

After stressing the sensitivities of rated GCC chemical companies to high borrowing and energy costs, their credit metrics hold up better than those of larger European peers. That is because the region's chemical companies, which are predominantly based in Saudi Arabia benefit from competitively low prices for feedstock, long-term security of supply, and solid bases of customers and shareholders.

“Therefore, we believe that the rated GCC chemical companies can absorb the combination of rising feedstock prices and borrowing costs without rating downgrades at this stage. However, the conditions make rating upgrades less likely,” S&P Global added.

That said, the pressures on the GCC's chemical companies are similar to the rest of the world. Increased geopolitical fallout in Europe (such as the Russia-Ukraine conflict, for example) and prolonged COVID-19 restrictions in China have strained supply chains and translated into a weaker global macroeconomic picture, with expectations of increasing interest rates in many jurisdictions, including the GCC.