Fitch Ratings affirms GIC at ‘BBB’
Fitch Ratings has affirmed Gulf Investment Corporation’s (GIC) Long-term Issuer Default Rating (IDR) at ‘BBB’ with a Stable Outlook. At the same time, the agency has assigned a Viability Rating (VR) of ‘bb-’. A full list of rating actions is at the end of this comment.
GIC’s IDRs are based on the high probability of support from its sovereign shareholders, if needed. Fitch’s view of support reflects GIC’s shareholding structure, as the only financial institution to be owned in equal proportions by all six GCC states and the special status accorded to it as a Gulf Shareholding Company.
The VR is based on GIC’s sound capitalisation and success in de-risking its balance sheet in recent years, while also considering its high reliance on wholesale funding and non-recurring income streams to drive profitability.
GIC has revised its strategy since the global financial crisis, focusing on its core strength of medium- to long-term private equity investments in the GCC, where it invests in key sectors such as metals, chemicals, utilities, telecommunication and financial services. At the same time, GIC has deleveraged and rebalanced its investment portfolio, reducing exposure to more volatile asset classes such as asset-backed securities and structured investment vehicles.
In 2011, GIC’s net profit increased 21% yoy to $182million, underpinned by a significant improvement in the share of associates’ profits. Fitch comprehensive income totalled $273million (2010: $367million), boosted by unrealised gains in available-for-sale (AFS) securities. Fitch believes profitability will continue to benefit from the company’s core business of principal investments, as recent investments season. However, operating income is highly reliant on non-recurring income streams. Fitch would view an increased contribution to profitability from recurring and stable earnings streams as positive.
GIC is entirely wholesale funded, with a high reliance on short-term customer deposits. However, Fitch notes that such deposits are sourced from GCC quasi-government sources, and have historically been stable. GIC was successful in raising additional medium-term debt in 2011 and H112, which has improved the maturity profile of its funding. At end-2011, the regulatory Tier 1 and Fitch core capital ratios were sound at 30.6% and 39.8%, respectively, although GIC’s capital is somewhat exposed to a significant portfolio of AFS securities and principal investments.
Established in 1983, GIC was formed to promote private enterprise and the economic growth and development of the GCC region. It is regulated by the Central Bank of Kuwait and holds an “investment company” licence. Its key operations are principal investments and global markets.
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