Moody’s: The vitality of the non-oil sector supports the growth of the UAE economy

“Since the opening of the office in April 2007, Moody’s has steadily grown its debt rating coverage in the Middle East, year-on-year, and its on-the-ground presence allows it to be more in tune with local market needs,” Abdullah Hudhud, Head of Middle East Relations at Moody’s Investors Service, told Al Khaleej on the occasion of the 17th anniversary of its office in the Dubai International Financial Centre.

Regarding the changes that have occurred since the agency began working in the UAE, he pointed out that “the UAE has changed significantly in the past seventeen years, amid increased investment in the region and an economic diversification programme, away from dependence on oil revenues.”

Al-Hodhud added: “The agency has also developed over its 115-year history, becoming famous as a credit rating agency. But in reality, this has changed, and you are now part of a much larger company. “We live in a world where risks are more interconnected than ever before.”

• 189 companies and institutions

Hodhod revealed that the agency is evaluating 189 companies and institutions across the region, and by the end of 2023, it has provided ratings to nearly 90% of the total debt issued in the debt capital markets, equivalent to $154 billion.

The ratings provide an independent assessment of credit risk, which is critical to facilitating investment decisions, including foreign direct investment.

Among the institutions, Hudhud said the company provides ratings for major banks such as First Abu Dhabi Bank and Abu Dhabi Commercial Bank, as well as real estate companies such as Aldar Properties, in addition to infrastructure projects and insurance companies.

According to Abdullah Hudhud: “Moody’s expects economic growth in the UAE to accelerate to 4.6% this year, driven by the oil industry and the strength of its vibrant non-oil sector in areas such as tourism, trade and transportation.

The real estate sector, which is the sixth largest component of the UAE’s non-oil economy, is expected to remain healthy over the next 12 to 18 months, although demand is expected to slow compared to the past two years and home builders’ margins should improve in this period. the time”.

“Moody’s expects Saudi Arabia’s economic growth to exceed 5% in 2024, after growth of 3.5% in 2023 and 6.5% in 2022,” he added, noting that “economic growth in both the UAE and Saudi Arabia is a strong indicator of demand for credit ratings and the need for debt capital markets by entities in the region.”

Regarding the company’s main potential growth markets in terms of rating coverage, he pointed out that “the UAE and Saudi Arabia are two major potential growth markets in the region, in terms of providing ratings to debt issuers.” “The issuance of dollar sukuks across the MENA region has been strong, and this year has maintained the momentum seen in 2023. For example, the real estate market in Dubai has boomed due to the effective management of the Covid pandemic, in relation to new residency visa categories.”

• Real estate deeds

He expected that “real estate companies, such as home builders and commercial real estate companies, will continue to issue sukuks over the next few years to finance capital spending and refinance outstanding sukuks amid strong demand from investors.”

• Directions for the future

Regarding the trend that most interests the UAE in the future, Hodhod considered that “the UAE’s investment in renewable technologies, such as wind energy, solar energy, green ammonia, and hydrogen, has attracted a lot of attention. The UAE hosted the United Nations Climate Change Conference (COP28) in November last year, and has a goal of reaching 50% clean energy by 2050. So, there is a real commitment here to the energy transition.”

He continued: “To finance this, UAE companies have issued so-called green bonds, the proceeds of which are used to finance sustainable projects such as developing facilities to enhance energy facilities, increase electricity and encourage sustainable water management.”

“In addition to our traditional ratings, Moody’s has also developed products that help issuers and investors alike better navigate this environment. For example, our Second Party Opinions (SPOs) are a valuable tool for corporate debt issuers seeking to build credibility to attract investors. These opinions assess an issuer’s alignment with international sustainability and have been used by a number of governments and corporates in the region,” he added.