The Impact of Rising Interest Rates on Corporate Finance

The Cost of Capital Has Changed — and Corporate Finance Is Being Rewritten

For the better part of a decade, chief financial officers operated in a world where money was nearly free. That era is definitively over. Central banks across the Gulf and emerging markets are holding benchmark rates at levels not seen since the mid-2000s, and the mechanics of corporate finance — from capital structure to M&A strategy to dividend policy — are being structurally rewired. The consequences are hitting boardrooms from Riyadh to Mumbai, from Lagos to São Paulo. The firms that adapted early are now pulling ahead of those still clinging to zero-rate assumptions.

In the first quarter of 2026, the UAE Central Bank held its base rate at 5.15%, mirroring the US Federal Reserve's decision to keep rates elevated amid persistent services inflation. Saudi Arabia's SAMA maintained its repo rate at 5.5%. The European Central Bank, having cut modestly in late 2025, still sits at 3.25% — a far cry from the negative territory of 2021. For corporates that built their balance sheets on cheap leverage, the reckoning has been both painful and clarifying.

Gulf Corporates Confront a New Debt Calculus

Across the GCC, where sovereign-linked entities and family conglomerates historically relied on variable-rate bank financing, the sustained rate environment has forced a fundamental reassessment of capital allocation. ACWA Power, the Saudi utility giant, reported a 22% increase in its net finance costs for fiscal 2025, reaching SAR 4.1 billion, even as revenues grew by only 14%. The company responded by accelerating asset recycling — selling minority stakes in operational renewable projects to infrastructure funds — rather than issuing new debt to fund its pipeline of desalination and green hydrogen ventures.

Emaar Properties, Dubai's largest listed developer, shifted its funding strategy in late 2025, issuing a $750 million sukuk at 5.875%. That was its most expensive issuance in fifteen years. CEO Amit Jain acknowledged on the Q4 earnings call that the group was "repricing internal hurdle rates upward across all new project approvals," effectively killing several mixed-use developments that would have sailed through approval three years ago. The message is blunt: higher rates aren't merely raising the cost of existing debt — they're actively reshaping the pipeline of future investment across the region.

Even cash-rich entities feel the pressure. Saudi Aramco generated $103 billion in free cash flow in 2025, yet analysts at Bernstein and Jefferies have questioned its dividend sustainability, pointing out that the Kingdom's fiscal breakeven oil price has climbed above $90 per barrel — partly because of the implicit cost of capital deployed through the Public Investment Fund's sprawling portfolio of giga-projects.

Family Offices and Private Wealth: The Retreat from Leverage

The impact on family offices and ultra-high-net-worth structures has been just as sharp. In the Gulf, multi-generational family groups traditionally leveraged real estate portfolios at loan-to-value ratios of 70-80%. That playbook is breaking down. Banks including Emirates NBD and First Abu Dhabi Bank have tightened covenants and raised margins by 75-150 basis points since early 2024. Several prominent Kuwaiti and Bahraini family offices have been forced into partial liquidations of trophy assets to meet margin calls or satisfy refinancing conditions.

Singapore and Hong Kong-based family offices — many established by Chinese and Southeast Asian entrepreneurs during the post-pandemic wealth migration — face parallel pressures. According to Campden Wealth's 2026 Global Family Office Report, average portfolio leverage among Asian family offices fell from 1.4x to 0.9x between 2023 and 2025. That is the sharpest deleveraging cycle on record. The shift has driven capital toward direct lending and private credit strategies, where these offices now sit on the other side of the rate equation, earning 11-14% annual returns on senior secured facilities to mid-market companies starved of affordable bank financing.

Emerging Market Corporates: Divergent Paths

Beyond the Gulf, the picture fractures — but the stakes remain just as high. Indian corporates have proven surprisingly resilient. The Reserve Bank of India cut its repo rate to 6.0% in April 2026 — its second consecutive cut — giving firms like Reliance Industries and Adani Green Energy room to refinance at marginally lower costs. Reliance's March 2026 bond issuance of $3 billion at 5.45% was three times oversubscribed, a strong signal of investor confidence in Indian corporate credit at a time when many peer markets remain under strain.

The contrast with Turkey, Nigeria, and Egypt is stark. Turkish corporates face effective borrowing costs above 45% in lira terms, pushing blue-chip firms like Koç Holding and Sabancı to restructure their entire operations around dollar-denominated revenue streams. In Nigeria, where the Central Bank rate stands at 27.5%, Dangote Industries has publicly stated that domestic debt financing is "effectively unavailable for long-duration capital projects," and is instead pursuing project finance from DFIs including the IFC and African Development Bank at concessional rates for its refinery expansion. Few outside the region have noticed.

Egyptian corporates face a similar bind. Elsewedy Electric, one of the country's largest industrial groups, reported that interest expenses consumed 31% of operating profit in 2025, up from 18% in 2022. That is a significant shift. The company has pivoted aggressively toward export contracts denominated in euros and dollars, using offshore receivables to secure cheaper syndicated facilities through European banks — a strategy that works for multinationals but remains completely out of reach for the country's vast middle-market sector.

Strategic Implications: What the Next Eighteen Months Will Reveal

The sustained rate environment is producing three structural shifts that will define corporate finance through the remainder of the decade.

First, capital discipline is replacing growth-at-all-costs. Companies across the Gulf and emerging markets are applying stricter internal rates of return — typically 200-300 basis points above where they stood in 2021 — and the result is a measurable contraction in greenfield investment. APICORP estimates that planned project commitments in the MENA energy sector fell 8% year-on-year in the first half of 2026. That's the first decline since the pandemic.

Second, the balance of power between equity and debt is shifting. With debt expensive, equity markets in Riyadh, Abu Dhabi, and Mumbai have become preferred funding channels. The Tadawul saw 14 IPOs in the first five months of 2026, raising a combined $6.2 billion — nearly matching the full-year 2025 total. Companies that would previously have tapped loan markets are instead offering equity stakes, diluting founders but preserving balance sheet flexibility.

Third, corporate treasury has become a profit centre rather than a cost centre. Overnight deposit rates in the UAE yield 4.8%. Saudi money market funds return above 5%. Cash-rich corporates are earning real income on idle balances. Almarai, the Saudi food producer, reported SAR 380 million in finance income for 2025 — a figure that would have been negligible four years ago and now represents roughly 6% of net profit.

The firms that will emerge strongest from this cycle are those treating the current rate environment not as a temporary inconvenience but as a permanent feature of their planning horizon. For CFOs still building models around a swift return to ultra-low rates, the market is offering an increasingly unforgiving lesson.

Amelia Rowe is a senior journalist at The Platinum Capital covering corporate finance, capital markets, and private wealth across the Gulf and emerging markets.