Standard & Poor’s Ratings Services on Friday affirmed its long- and short-term foreign and local currency issuer credit ratings on Bahrain-based Mumtalakat Holding Co. (Mumtalakat) at BBB/A-2. The outlook is stable.
“We equalize the ratings on Mumtalakat with those on Bahrain because we believe that 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, though we note that the government does not formally guarantee Mumtalakat’s financial liabilities,” S&P in a statement said.
“We expect Mumtalakat’s ownership structure to remain unchanged over the long term. The government directly controls all of Mumtalakat’s important operational and financial transactions through its dominant representation on Mumtalakat’s board of directors. Bahrain’s deputy prime minister is the chairman of Mumtalakat’s board of directors. The ministers of finance and transport are also members of Mumtalakat’s board, which underlines our view of the company’s integral link with the government. We understand that major investments or divestments require the assent of the country’s most senior leadership,” the statement added.
“Mumtalakat’s public policy role consists of managing Bahrain’s wealth while contributing to its 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, although currently most of the assets are domestic state-owned enterprises in banking, manufacturing, real estate, telecommunications, and aviation.
“Mumtalakat operates on behalf of the government and does not take material investment decisions without the government’s knowledge. Although Mumtalakat has not paid any dividends to the government since its inception, it is eventually expected to contribute positively to public finances. This, coupled with Mumtalakat’s operational proximity to the Bahraini government and repeated capital increases by the government, 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. In this context, we believe that the government’s medium-term budget plan to directly cover Gulf Air’s operating losses limits the potential liabilities for Mumtalakat.
“We assess Mumtalakat’s stand-alone credit profile (SACP) at ‘bb’, based on our methodology for investment holding companies. We focus on loan-to-value and interest and operating expense coverage ratios. Consolidated financial metrics complement our assessment, but are not our primary focus. 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 investments. We view positively Mumtalakat’s adjusted holding company loan-to-value ratio of about 28% and interest and operating expense coverage ratio at 4.4x for 2012. We foresee a weaker coverage ratio in 2013 and 2014 on lower dividend payouts from ALBA and Batelco, in particular, but we expect this to remain at around 2x.
“The stable outlook reflects our view of the balanced risks to the sovereign rating, given our assumption that Mumtalakat’s integral link and critical role for the Bahraini government will remain unchanged.
“We also assume that the government will continue to provide, in the medium term, direct coverage of losses at Gulf Air as planned in the government budget. We could revise our view on Mumtalakat’s role for and link with the government if the sovereign decided not to cover Gulf Air’s losses, or act in a timely manner to protect Mumtalakat, as this could affect our assessment of the likelihood of extraordinary support.”