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29 Dec | Friday
RAM Ratings reaffirms Gulf Investment Corporation's AAA/Stable ratings

RAM Ratings has reaffirmed Gulf Investment Corporation GSC’s (GIC or the Corporation) AAA/Stable/P1 financial institution ratings. Concurrently, the AAA/Stable ratings of GIC’s RM3.5 billion Sukuk Wakalah bi Istithmar Programme (2011/2031) and RM400 million Senior Unsecured Bonds (2008/2023) have also been reaffirmed.

As an institution mandated to support economic growth and diversification as well as capital market developments within the Gulf Cooperation Council (GCC), the reaffirmed ratings reflect the continuous solid support that GIC receives from its 6 shareholders – Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman, and Bahrain. Among the 6 GCC countries, we have applied heavier weights to the higher-rated sovereigns (i.e. Kuwait, Qatar, Saudi Arabia and the UAE) in deriving our approach to shareholder support. These 4 countries had demonstrated their timely support during the global financial crisis. While we remain cognisant of the downside risks arising from the diplomatic rift between Qatar and several GCC members, the spill-over effects from the stand-off have been relatively contained, although longer-term implications could arise if the estrangement persists or intensifies. Notably, GIC's operations have not been affected by the rift. The ratings also consider GIC’s sound liquidity and low leverage; the Corporation’s healthy capitalisation provides a sufficient buffer against its volatile earnings and relatively risky business model.

GIC's business model is inherently more risky given the longer gestation periods and illiquidity of its principal investments, thereby exposing the Corporation to earnings volatility, market risk and impairment risk. Profit contributions and divestment gains are also uneven due to its concentration on a few large entities and commodities-driven businesses, which tend to be cyclical. In fiscal 2016, GIC's pre-tax profit halved to USD57 million (fiscal 2015: USD112 million) amid the absence of large divestments during the year. That said, its profitability rebounded to USD65 million in 1H fiscal 2017, driven by a marked improvement in contributions from its investee companies.

Meanwhile, GIC's liquidity profile has remained healthy. The Corporation's liquid assets to short-term funding ratio stood at a healthy 2.0 times as at end-June 2017, while its liquidity coverage ratio stood at a strong 230%. GIC's tier-1 capital and leverage ratios of a respective 20.5% and 1.8 times are still deemed sufficient vis-a-vis its risk profile.

Analytical contact
Choong Andrea
(603) 7628 1115
andrea@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 29 December 2017

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad’s

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