Global Arab Network | S&P: Government-Owned Bahrain Mumtalakat Holding Co. Rated Stable Outlook

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S&P: Government-Owned Bahrain Mumtalakat Holding Co. Rated Stable Outlook

Global Arab Network - - George Haddad

Tuesday, 01 June 2010 13:07

Government-Owned_Bahrain_Mumtalakat_Holding

Standard & Poor's Ratings Services said today it assigned its 'A/A-1' long- and short-term issuer credit ratings to government-owned Bahrain Mumtalakat Holding Co. (Mumtalakat). The outlook is stable.

The assigned rating reflects S&P assessment of Mumtalakat under its enhanced criteria on government-related entities (GREs). Although the government does not formally guarantee Mumtalakat's financial liabilities, S&P equalizes the ratings on Mumtalakat with those on the Kingdom of Bahrain (A/Stable/A-1) because S&P believes there is an "almost certain" likelihood that the Bahraini government would provide timely and sufficient extraordinary support to Mumtalakat in the event of financial distress.

In accordance with S&P criteria for GREs, S&P rating approach is based on its view of Mumtalakat's:

* "Critical" role for Bahrain's official long-term development and economic diversification strategies; and
* "Integral" link with the government, Mumtalakat's sole owner.

"We expect Mumtalakat's ownership structure to remain unchanged over the long term," said Standard & Poor's credit analyst Moritz Kraemer. "The government directly controls all of Mumtalakat's important operational and financial transactions through its dominant representation on Mumtalakat's board of directors, which underlines our view of the company's integral link with the government."

S&P understands that major investments or divestments require the assent of the country's most senior leadership.

Mumtalakat's public policy role consists of managing the Kingdom's wealth while contributing to Bahrain's longer-term strategy to diversify away from the hydrocarbons sector. The company manages a corporate portfolio in the non-oil and gas sectors, both in Bahrain and abroad. Mumtalakat operates on behalf of the government and does not take material investment decisions without the government's knowledge. This, coupled with Mumtalakat's operational proximity to the Bahraini government and repeated governmental capital increases, leads us to conclude that the government would be willing to provide substantial ongoing support to Mumtalakat's operations and to intervene in a timely manner if the company were to require extraordinary financial support.

S&P assesses Mumtalakat's stand-alone credit profile (SACP) to be in the 'BB' rating category. The SACP is constrained by Mumtalakat's current geographic concentration in Bahrain and its relatively weak operating performance, which is largely attributable to state-owned airline Gulf Air and the start-up nature of some of its core investments.

"The outlook is stable because we believe that Mumtalakat's integral link with and critical role for the Bahraini government will remain unchanged and that the company would almost certainly benefit from extraordinary financial government support should the need arise," said Mr. Kraemer. "The stable outlook is also predicated on our expectation that the government will provide direct coverage of losses at Mumtalakat's fully-owned subsidiary Gulf Air in the near future," Mr. Kraemer added.

S&P would revise its view on Mumtalakat's role for and link with the government and, ultimately, its assessment of the likelihood of extraordinary support should the company's investment strategy significantly change over time, such as through a risky expansion strategy in a shift away from the focus on government-owned corporate assets.

Any rating action on Bahrain would result in a similar rating action on Mumtalakat.

S&P would consider a negative rating action if S&P was to perceive a weakening of the government's commitment to Mumtalakat, for example, if Bahrain were not to cover Gulf Air's losses.

Global Arab Network

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