DUBAI: Government decisions to freeze tuition fee increases next academic year are credit negative for GEMS Education, an international private education provider based in Dubai, credit rating agency Moody's said on Thursday.

The recent decisions by regulators in Dubai and Abu Dhabi, though widely expected, will limit the company's ability to increase revenue next year while it has a high leverage ratio of 9.4 times debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), Moody's said.

It added that the decisions were already factored into its B3 rating and stable outlook for GEMS.

"They nonetheless create a degree of uncertainty regarding GEMS' ability to increase tuition fees consistently in the future, which may further slow down its deleveraging trajectory," Moody's said.

The agency estimates GEMS generates around three quarters of its revenue in Dubai and Abu Dhabi, the economies of which have suffered from restrictions to stem the spread of the coronavirus.

Estimating spare capacity at GEMS' institutions at 20,000 seats, or around 15% of the total, in the UAE and Qatar, Moody's said the group could benefit during a recovery if there was a reduction in new school openings because of the uncertain profit outlook.

The company will offset the tuition freezes with measures including capping staff wage inflation and cutting discretionary spending, Moody's said, although some of GEMS' schools will be eligible for exceptional fee increases.