Development banks in Qatar, Kuwait and UAE seen to fund GCC Interconnection Authority's investments for 2025-27: S&P

Development banks from Qatar, Kuwait and the UAE are expected to fund the Gulf Cooperation Council Interconnection Authority's (GCCIA) $1.1bn-$1.3bn investment programme for 2025-27, according to Standard & Poor's (S&P), an international credit rating agency.

The GCCIA, in which Qatar holds 12% stake, is the interconnector for the GCC countries, ensuring security of electricity supply in the region operating under a framework that allows full costs pass through with no more than one year lag to recover differences between budgeted and actual costs.

The GCCIA is currently expanding its network with about $1.1bn-$1.3bn of investments over 2025-27, which will pressure its credit metrics over the same horizon, given all projects are fully debt funded, S&P said in its latest report.

"This investment programme will be fully debt funded with financing expected to come from the local development banks, including of Kuwait, Qatar, and the UAE," the report said, adding this would lead to negative free operating cash flow (FOCF) of about $500mn in 2025 decreasing to be free cash flow neutral from 2027 (2028 should the backbone project to be secured).

"As a result, we currently expect net debt to peak at about $800mn-$850mn in 2026-27, decreasing to about $600mn by 2029. Once the backbone expansion project starts, we expect gross debt to grow by an additional $300mn from 2026, amortising over at least 10 years," the rating agency said.

However, S&P expects the GCCIA to be able to cover additional debt-servicing related to this project with the additional contribution it should receive from the shareholders.

Qatar Fund for Development (QFFD) had in February 2025 signed a loan agreement with the GCCIA to finance the expansion of the electricity grid in Oman, as part of efforts to enhance regional cooperation and sustainable development.

Stamping "stable" outlook to the GCCIA, S&P said it indicates that the rating agency expects the authority to continue receiving timely support from the GCC states, enabling the company to expand its existing network as planned.

Including in its Ebitda (earnings before interest, taxes, depreciation and amortisation) calculations, the contributions from member countries used to service the debt; the report said it consider funds from operations to debt (FFO) and FOCF to debt as the key ratios because they capture the cash flow after interest-servicing and the high capital spending (capex) plans in the future years.

Incorporating its expectation that the GCCIA will receive annual fees and contributions from its shareholders to service debt in a timely manner, ensuring smooth operations and deleveraging over the forecast horizon; S&P said "we therefore expect the company's FFO to debt to be above 9% and to improve to 10-22% in 2026-27."