“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,” the statement added.
“In accordance with our criteria for government-related entities (GREs), our rating approach is based on our 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,” S&P explained.
“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 underpins 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 leaders,” it said.
“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. 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 current arrangements regarding direct government financing of Gulf Air limit the potential liabilities for Mumtalakat arising from the national airline.
“We assess Mumtalakat’s stand-alone credit profile (SACP) at ‘bb’. The SACP is constrained by Mumtalakat’s current geographic concentration in Bahrain and our view of its relatively weak operating performance, which is largely attributable to Gulf Air and the start-up nature of some of the airline’s investments. We take comfort in an adjusted holding-company loan-to-value ratio of around 30% and the 2011 interest and operating expense coverage ratio of 3.9x.”
“The stable outlook reflects the outlook on the long-term rating on Bahrain, and our assumption that Mumtalakat’s integral link and critical role for the Bahraini government will remain unchanged,” the statement said.
“In this regard, we also assume that the government will continue to provide direct coverage of losses at Mumtalakat’s fully-owned subsidiary, Gulf Air, as planned in the government budget. We could revise our view of Mumtalakat’s role for and link with the government if the sovereign were to delay its payments for coverage of Gulf Air’s losses or otherwise act in a manner that might suggest a diminishing commitment to Mumtalakat,” S&P added.