Fitch assigns Gulf General Investment Company 'BBB' rating; Outlook Stable

The ratings reflect GGICO's diversified portfolio of operations, which is weighted towards residential development (approximately 40% of forecast FY07 cash-based profit). It also includes securities trading and controlling stakes in entities ranging across the leisure, insurance, oil lubricants and wood prefab sectors.

The ratings are supported by GGICO's diversification of operations, as well as by its conservative risk management, such as the pre-selling of units in its phased residential developments (which also reduces GGICO's cash commitments to complete projects) and the use of strict investment criteria within its securities trading division.

The ratings also reflect the conservative financial profile of the group in relation to its mix of business activity. Using Fitch-adjusted figures, which exclude unrealised valuation gains (non-cash) and add to cash 50% of the realisable securities portfolio, net leverage stood at 1.2x and interest coverage at 4.6x as at YE06 (31 December 2006). Based on management plans, over the next three years net leverage is expected to modestly increase, although remaining at a level consistent with the current IDR.

The majority of GGICO's activities are focused in the UAE (79% of FY06 sales), particularly in Dubai. While this region is currently experiencing high growth, which in turn supports GGICO's on-going expansion plans, it also leads to geographic concentration and exposes GGICO to a possible future slowdown in the region's growth.

The ratings are limited by the business risk inherent within residential development (cyclical demand, competitive environment, project risk), securities trading (market risk, credit risk) and industrial operations (cyclical demand, rising input costs). The ratings are also restricted by the group's history of negative free cash flow, reflecting the heavy ongoing investment requirements as the company rapidly expands. However, as the business matures over the coming two-to-three years, Fitch expects to see positive free cash flow being generated.

Currently, GGICO's liquidity is limited by the group's negative free cash flow, as well as its high proportion of short-term debt, with Dhs1,219m (64% of total debt) falling due by YE08 (as at September 2007). However, the group's plan to refinance much of this short-term debt with longer-term debt will enhance its liquidity profile, which is also supported by existing cash resources (Dhs233m as at H107), and possible (if forced) realisations of securities (valued at Dhs1,550m as at H107) and its multi-unit residential property portfolio (valued at Dhs1,323m as at H107). The group has also regularly accessed the debt and equity markets for fresh capital.

The rating of GGICO is a stand-alone rating, and therefore does not assume any potential financial support from its 53% majority shareholder, Investment Group (Pvt) Ltd (owned by the Al Sari family).