Published on 12 Jan 2021.
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 RM400 million Senior Unsecured Bonds (2008/2023) and RM3.5 billion Sukuk Wakalah bi Istithmar Programme (2011/2031).
The rating action reflects our view that extraordinary support from its Gulf Co-operation Council (GCC) shareholders – particularly the United Arab Emirates (UAE), Qatar, Kuwait and Saudi Arabia – will be readily extended in times of need, as the Corporation continues to fulfil its unique mandate of supporting the region’s development. The sovereigns’ credit strength have remained stable, although downside risks have heightened in light of lower oil prices and the pandemic-triggered economic crisis.
Excluding the support, GIC’s credit strength is anchored on its low leverage, sturdy capitalisation and healthy liquidity, albeit counterbalanced by an inherently volatile profit performance due to its dependence on market-sensitive income. A prolonged crisis would weigh on GIC’s performance should it impair the long-term viability of the Corporation’s principal investments (PIs), since GIC derives a substantial portion of its earnings from this portfolio. That said, the extent of potential impairments over the medium to long term remains to be seen in view of the still-evolving crisis – we will continue monitoring the rating impact on this front.
GIC’s pre-tax profit was up 22% y-o-y to USD131 mil in FY Dec 2019, propped up by stronger investment income from the Global Markets division while PIs’ earnings had paled in comparison. Amid the Covid-19 pandemic, provisions and weaker valuations subsequently pushed GIC into the red in 1H fiscal 2020 (-USD100 mil; 1H fiscal 2019: +USD157 mil). The losses were also partly due to subdued equity-accounted income from the PI portfolio (USD1.2 mil; 1H fiscal 2019: USD96 mil), as most investees had either experienced a slump in earnings or were loss-making in 1H fiscal 2020.
As challenging conditions dim the prospects of any near-term recovery, equity-accounted income may only revert to pre-pandemic levels in 2022. That said, GIC’s stable stream of income from completed power projects provides some earnings certainty as they have long-term power purchase agreements with GCC governments. From a capital and leverage standpoint, the Corporation’s leverage stayed low at around 1.4 times while tier-1 capital ratio was a sturdy 37.4% as at end-June 2020. GIC’s liquidity also remained healthy with liquid assets more than sufficiently covering its short-term funding at over 2 times as at the same date.
Loh Kit Yoong
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Ratings on Gulf Investment Corporation GSC