Capital Standards Rating assigns 'BBB' to KIC

12/12/2010 00:00 AST

Capital Standards Rating Company (CSR) announced in a press release on Saturday that it has assigned a long-term issuer rating of 'BBB' and a national rating of 'Akw' to Kuwait Investment Company (KIC). The outlook for the rating is negative. This is the first time that CSR rates KIC.

The issuer rating reflects the high probability that KIC would be supported by Kuwait Investment Authority (KIA), its major shareholder, should the need arise. KIA is the sovereign wealth fund of the State of Kuwait and has a 76.2 percent stake in KIC. The stand-alone rating 'BB' reflects KIC's strong brand recognition in Kuwait and the company's financial flexibility which is supported by institutional deposits. However, this rating is significantly constrained given the limited diversification of KIC's business model. The rating is also constrained by KIC's significant market risk exposure and a substantial mismatch between the asset and liability maturities.

KIC is one of the largest asset managers in Kuwait with assets under management (AUM) amounting to 2.5 billion Kuwaiti dinars as of December 2009. In the last two years, KIC's financial performance was significantly impacted by the financial crisis, exposing the risk in the company's business model. CSR believes that with the current business model, KIC's profitability is likely to remain volatile and constrained in the current economic environment.

KIC holds an investment banking license, and therefore is the only listed investment company in Kuwait which can accept institutional deposits. While this significantly adds to the financial flexibility of the company, the short term nature of the institutional deposits remains a concern. In addition, KIC's investment portfolio is primarily longer term in nature resulting in maturity mismatches. Nevertheless, shareholder funding in the form of deposits significantly dominates KIC's deposit base, alleviating pressure on the company's funding structure.

Al Watan