Fitch Ratings-London-15 June 2015: Fitch Ratings has affirmed Gulf Investment Corporation’s (GIC)
Long-term Issuer Default Rating (IDR) at ‘A-‘ with a Stable Outlook. A full list of rating actions is available at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS and SUPPORT RATING
The IDRs and ‘1’ Support Rating reflect an extremely high willingness and ability of GIC’s sovereign shareholders to provide support if required. GIC’s shareholders are the six countries of the Gulf Corporation Council (GCC), which hold equal shares.
The ability to support considers the creditworthiness of the sovereign shareholders: Kuwait (AA/Stable), Saudi Arabia (AA/Stable), Qatar (AA/Stable), Bahrain (BBB-/Stable), UAE and Oman, and
GIC’s modest size relative to its shareholders. The propensity to support reflects GIC’s role as a specialist developmental lender and the track record of support in the region. It also considers GIC’s fragmented ownership, which could affect the timeliness of support. The ‘F1’ Short-term IDR also factors in a good track record of ordinary liquidity support from the shareholders.
VR
Company profile and risk appetite have a strong influence on GIC’s VR given the nature of the business model. Fitch believes GIC is appropriately capitalised in view of its exposure to less liquid
investments in the principal investments (PI) portfolio and business model risk.
Funding and liquidity is also considered strong as GIC can rely on large deposits from its shareholders and related entities. As these deposits are typically short-term and can fluctuate, GIC has also raised wholesale medium-term funding to better match its longer-term PI portfolio. Additionally, GIC’s global markets (GM) business, which comprises a portfolio of highly rated and liquid debt securities and equities, serves as a liquidity pool if required.
The rating also reflects GIC’s strong management team and more conservative strategy, particularly in GM, since its asset quality problems in 2009. Fitch considers earnings and profitability as healthy but sensitive to PI exit and market volatility.
RATING SENSITIVITIES
IDRS AND SUPPORT RATING
GIC’s IDRs and Support Rating are sensitive to a change in Fitch’s view of the importance of the company to its shareholders and therefore to changes in the propensity to provide support.
Deterioration in the ability of GIC shareholders to support the entity is unlikely, given its small size relative to its shareholders. A strengthening of the creditworthiness of the shareholders, as reflected by upgrades to their ratings, would not necessarily trigger an upgrade of GIC’s ratings as this would also depend on support propensity dynamics.
VR
GIC’s VR may be sensitive to a prolonged dislocation in wholesale funding markets. This is likely to be mitigated by contingent liquidity in the form of shareholder deposits and liquid investments in the GM portfolio. The VR is also sensitive to a sharp and sustained fall in income and asset quality deterioration and to changes in risk appetite.
The rating actions are as follows:
Gulf Investment Corporation
Long-term IDR affirmed at ‘A-‘; Outlook Stable
Short-term IDR affirmed at ‘F1’
Support Rating affirmed at ‘1’
Viability Rating affirmed at ‘bb