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RAM Ratings reaffirms Gulf Investment Corporation’s AAA ratings

Published on 03 Jan 2020.

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RAM Ratings has reaffirmed Gulf Investment Corporation G.S.C.’s (GIC or the Corporation) AAA/Stable/P1 corporate credit ratings as well as the AAA/Stable ratings of its RM3.5 billion Sukuk Wakalah bi Istithmar Programme (2011/2031) and RM400 million Senior Unsecured Bonds (2008/2023). The reaffirmation of the ratings reflects our view that GIC enjoys strong support from its Gulf Co-operation Council (GCC) shareholders – Kuwait (rated gAA3(pi)/Stable/gP1(pi)), Saudi Arabia (rated gAA3(pi)/Stable/gP1(pi)), the United Arab Emirates (rated gAA2(pi)/Stable/gP1(pi)), Qatar (rated gAA3(pi)/Stable/gP1(pi)), Oman (rated gBBB2(pi)/Stable/gP3(pi)) and Bahrain (rated gBB1(pi)/Stable/gNP(pi)) – as the Corporation continues to fulfil its unique mandate of supporting the region’s development. 

Accordingly, GIC’s ratings incorporate shareholder support, with heavier weights applied to the sovereign ratings of Kuwait, Saudi Arabia, the UAE and Qatar as these states had demonstrated strong and timely support for the Corporation during the global financial crisis. Geopolitical tensions among GCC members remain a key downside risk to GIC’s ratings. Despite unresolved conflicts between certain member states and in the region, we understand that GIC’s operations have stayed unaffected. The Corporation’s deleveraging exercise, in addition to well-paced growth in recent years, further reduces the need for capital calls in the next 12-18 months.

GIC’s business – which has focused on undertaking private equity investments since 2H 2013 (termed principal investments (PIs)) – has inherently higher-risk elements including longer gestation periods and the illiquidity of PIs. These factors give rise to earnings instability, market risks and potential impairments, although partly moderated by GIC’s sound risk management practices – seen in a well-defined risk appetite in respect of PIs and a conservatively managed securities portfolio. In the review period, GIC continued to divest large and non-strategic PI assets as part of its present strategy, which has resulted in single-name concentration reducing over the past six years – albeit still high in our view. As its two largest investments operate in the commodity-driven industries of metals and mining and chemicals, their fortunes are inextricably linked to the cyclicality of the sectors – exposing GIC to earnings volatility. This is evident from GIC’s performance in the last two years – the top two investees were key contributors to the Corporation’s better earnings in fiscal 2018 and 1H fiscal 2019, when pre-tax profits had clocked in at a respective USD107 mil and USD157 mil. 

The Corporation’s liquidity profile stayed strong, with Basel III liquidity coverage and net stable funding ratios of 183% and 175% as at end-June 2019, respectively. With a tier-1 capital ratio of 44% and leverage ratio of 1.4 times as at end-June 2019, GIC’s capital position is deemed sound vis-à-vis its higher risk profile.

 

Analytical contact
Loh Kit Yoong 
(603) 3385 2493
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad

 



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