Global Arab Network | S&P: Kuwait-based Gulf Investment Corp.'s funding remains skewed

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

S&P: Kuwait-based Gulf Investment Corp.'s funding remains skewed

Global Arab Network - - Mohammed Almasri

Tuesday, 06 April 2010 09:53

Kuwait-based_gulf_investment_corporation

Standard & Poor's Ratings Services on April 1, 2010, downgraded the ratings on Kuwait-based Gulf Investment Corp. G.S.C. (GIC), including lowering the counterparty credit ratings to 'BB-/B' from 'BBB-/A-3', and placed the long-term ratings on CreditWatch with negative implications.

The downgrade and CreditWatch placement reflect S&P view of GIC's funding profile, which remains skewed toward short-dated funding instruments. In S&P opinion, this structure results in material exposure to liquidity and refinancing risks. At year-end 2009, GIC had about $1.6 billion in securities that were coming due in the following 12 months--including about $860 million of repurchase agreements and $720 million of bonds.

"In our opinion, this funding structure exposes GIC to market conditions and raises a significant refinancing risk," said Mohamed Damak, credit analyst at Standard & Poor's Ratings Services. "Partly mitigating this risk is the fact that GIC had, by our calculation, about $1 billion in liquid assets that potentially could be applied toward these obligations. In addition, GIC has stated that it holds a significant portfolio of investment-grade bonds not tied to repo transactions, which it could potentially sell to provide funding."

The ratings on GIC reflect its status as a government-related entity under Standard & Poor's criteria and S&P view of its strong ongoing funding support from entities related to GIC's shareholders. Offsetting these positive factors are S&P view of GIC's high leverage, its strong reliance on short-term funding, rather high risks in GIC's project investments and securities portfolios, and the somewhat illiquid nature of the majority of GIC's project investments.

The long-term rating on GIC currently includes a one-notch uplift above its stand-alone credit profile to reflect S&P views on GIC's strong links with its shareholders and limited strategic importance, which imply a moderate likelihood of timely and sufficient support, if the need arises.

"The CreditWatch placement reflects our view of the risks to GIC's liquidity and refinancing," Mr Damak added. "GIC's capacity to significantly strengthen its liquidity, reduce its leverage, lengthen the duration of its funding profile to match that of its asset base, and sustain liquidity at adequate levels will be the main determinants for the CreditWatch resolution. Another determinant would be our views about GIC's contingency funding plans, shareholders' support, and indications we might obtain about the timeliness and size of that support in case of need."

S&P expects to resolve the CreditWatch placement in the coming weeks following consideration of the above-mentioned factors and discussions with GIC. S&P does not exclude a multinotch downgrade if S&P lower S&P expectations of support to below those already factored into GIC's ratings and if GIC is unable to improve its liquidity and lengthen the maturity profile of its funding base. At the same time, S&P would seek more transparency from shareholders as to their support intentions for GIC.

Global Arab Network

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network