Fitch downgrades Gulf Investment Corporation's Individual rating to 'C/D'; affirms IDR at 'A'

Simultaneously, Fitch has affirmed GIC's Long-term Issuer Default rating (IDR) at 'A' with Stable Outlook, Short-term IDR at 'F1', Support rating at '1' and Support Rating Floor at 'A'.

The downgrade of GIC's Individual rating reflects the company's exposure to SIVs and structured assets and write-downs on these assets in 2007 and Q108. Additional write-downs remain a possibility as uncertainty in the global credit markets continues and would further impact GIC's profitability and capital ratios.

GIC's exposure to SIVs at end-2007 was $209m and to structured notes $248m. In November 2007, GIC redeemed two SIVs, taking a vertical slice of $1.2bn of the SIVs' assets. Although these assets are generally of good quality, consisting largely of 'AAA' rated financial institution bonds, CDOs, CLOs and MBS, they also include some lower rated assets.

In 2007, the company recorded impairment charges of $139m on SIVs and USD101m on structured notes. This led to a 60% yoy decline in net income. However, core profitability remained adequate, driven by revenue from private equity investments, GIC's other proprietary investments and trading, which have benefited from the benign GCC operating environment.

GIC's Basel II Tier 1 ratio declined to 18.6% at end-2007 from 25.1% at end-2006. Capital ratios are likely to come under further pressure as the company continues to write down its investments in SIVs and structured notes.

GIC's IDRs and Support rating reflect the extremely high probability that the company would receive financial support from its shareholders, in case of need. The six member states of the GCC (consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) wholly own GIC in equal proportions.

GIC was established in Kuwait in 1983 to support the development of the GCC economies. It is regulated by the Central Bank of Kuwait and holds an 'investment company' licence. GIC's activities include GCC private equity investment, asset management, and investment banking.