Published on 03 Jan 2020.
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.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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Ratings on Gulf Investment Corporation GSC