RAM reaffirms Gulf Investment Corporation’s AAA/Stable ratings

KUALA LUMPUR: RAM Ratings has reaffirmed Gulf Investment Corporation GSC’s (GIC) 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 by RAM Ratings.

According to RAM Ratings, 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 six shareholders - Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman, and Bahrain.

Among the six GCC countries, RAM Ratings applied heavier weights to the higher-rated sovereigns -- namely Kuwait, Qatar, Saudi Arabia and the UAE -- in deriving its approach to shareholder support.

“These four countries had demonstrated their timely support during the global financial crisis,” the ratings firm said.

While RAM Ratings remained 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 longerterm 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.”

RAM Ratings highlighted that 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 commoditiesdriven businesses, which tend to be cyclical.

“In fiscal 2016, GIC’s pretax profit halved to US$57 million amid the absence of large divestments during the year.”

That said, the ratings firm noted that GIC’s profitability rebounded to US$65 million in the first half (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 two-fold as at end-June 2017, while its liquidity coverage ratio stood at a strong 230 per cent.

“GIC’s tier-one capital and leverage ratios of a respective 20.5 per cent and 1.8 times are still deemed sufficient vis-avis its risk profile.”