Dubai : Family businesses show better prudence

Dubai: Family-owned GCC conglomerates are strong on credit quality and accounting standards, according to a report by Moody’s, the international rating agency. « Whilst financial transparency and conglomerate-type business strategies pose analytical challenges, such companies also frequently demonstrate hidden credit strengths, » said Moody’s Investors Service. Analysing the key characteristics and issues involved in assessing the credit strength of family-owned companies in the Middle East, Philipp Lotter, Moody’s Senior Credit Officer and author of the report, said, « The main analytical challenges in assessing the credit quality of family-owned companies in the GCC, where such groups are commonplace, are the ownership structure and the limited public financial disclosure. » Key areas Moody’s new report, titled ‘Family-Owned Corporates in the GCC, looks at four keys areas such as corporate structures, accounting and transparency issues, capital structure and liquidity and analytical considerations. According to Moody’s, many large family-owned or closely held companies in the GCC encompass diversified core operations, often comprising real estate, construction and energy activities complemented by large land banks and investment portfolios. As a result of closely-held corporations being not obliged to publicly report their results, the availability of public information can often be sketchy. To assess a company’s financial strength, Moody’s has so far relied on private annual accounts, often prepared under International Financial Reporting Standards and audited by international firms. Moody’s said the quality of information, and indeed companies’ willingness to share such information on a confidential basis, are often high. Moody’s observes that many companies in the GCC – whether closely held or publicly quoted – rely heavily on short-term funding, which often depends on the strength of their banking relationships rather than any contractual commitment. The use of uncommitted lines to meet potential short-term liquidity needs remains a source of some uncertainty. Source : El watan