Fitch Ratings has affirmed Gulf Investment Corporation’s (GIC) long-term issuer default rating (IDR) ‘BBB’ with a stable outlook, short-term IDR at F3 and support rating at 2.
The Individual rating has simultaneously been upgraded to ‘D’ from ‘D/E’. No viability rating has been assigned to GIC as it is a non-bank financial institution (NBFI).
GIC’s IDRs are based on the high probability of support from its sovereign shareholders, if ever required. Fitch’s view of support reflects GIC’s shareholding structure, as the only financial institution to be owned in equal proportions by all six Gulf Cooperation Council (GCC) states and the special status accorded to it as a Gulf Shareholding Company. The company’s articles of association give it preferential treatment within the GCC, such as exemption from asset appropriation, currency controls and tax.
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, while increasing exposure to investment grade GCC and international debt securities.
GIC reported a net profit of $151m in 2010, an increase of 66% yoy (2009: $91million). Underpinning this growth was a significant improvement in principal investments, which more than offset lower interest income. Fitch comprehensive income was substantially higher than net profit at $367million (2009: $538million), driven by large unrealised gains in available for sale (AFS) securities. The slowly improving operating environment and the GCC’s high growth potential should serve GIC well in the medium to long term. An important part of GIC’s strategy in the short to medium term is to diversify revenues by significantly growing its third-party asset management business. Although full implementation may take time, Fitch would view an increased contribution to earnings from more stable and recurring sources as positive.
In 1H11, GIC repaid $554million of term finance (predominantly a euro 400m issue), replaced by $300million of issuance in both US dollars and Malaysian Ringgit (MYR). A further MYR750million ($250million) has been raised and will be completed in Q311. GIC has no outstanding term finance maturing until 2013. GIC’s regulatory Tier 1 ratio improved to 30% in 2010 (2009: 27.7%) which Fitch considers sound, taking into account the large AFS securities portfolio and its book of 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.