Gulf Inv. Corp's strong profitability and liquidity support its A2 rat

07/05/2015 10:43 AST

Gulf Investment Corporation's (GIC) A2 rating with a stable outlook balances its healthy liquidity, good capital buffers and strong profits against its volatile asset quality and the concentration of its activities in limited countries, Moody's Investors Service says in a report.

The report, entitled "Credit Analysis, Gulf Investment Corporation G.S.C.", is available through the links at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"The stable outlook reflects our expectation that GIC's capital buffers and liquidity position will be sustained," says Mathias Angonin, analyst and co-author of the report. "We also expect GIC to stabilize leverage and place greater emphasis on its principal investment portfolio."

The Multilateral Development Bank's (MDB) profitability is very strong and is improving, with return-on-assets averaging 2.9 per cent over the past five years, a figure that is among the highest of the MDBs that Moody's rates. GIC has reduced its leverage considerably since 2008, with debt-to-usable equity dropping from five times in 2008 to close to 50 per cent in 2014.

Moody's does not expect GIC's high liquidity levels to be affected by the expected tightening of US monetary policy or possible changes in global liquidity positions. GIC's financial performance will also cope with the fall in oil prices over the last year because its principal investments are well diversified.

However, GIC's equity investments are riskier than other MDBs that make loans to public or private sector entities. Its assets are highly concentrated in the GCC, although they are split between sectors and between securities investments and equities.

Moody's notes that GIC's concentration in a relatively narrow range of countries is not out of line with regional MDBs. This operating environment is relatively favourable since all of the Gulf Cooperation Council (GCC) countries benefit from an investment grade environment.

GIC's reliance on short-term deposits is a potential source of weakness as Moody's considers deposits to be one of the least resilient sources of funding. As of 2014, deposits accounted for about one third of liabilities, at $772 million, down from $1.2 billion in the previous year.

However, Moody's says GIC has a solid record of debt issuance and its funding costs are particularly low when compared to other MDBs.

CPI Financial