Moody's rates Gulf General Investment Company ('GGICO') Baa2 with a stable outlook

The outlook is stable. This is the first time that Moody's has assigned a rating to GGICO.

'GGICO's ratings are supported by its conservative financial policy, fairly well diversified core businesses, and a prudent risk management policy, which includes the assumption of shareholder support', says Philipp Lotter, Dubai/DIFC based Senior Vice President at Moody's Middle East Limited and lead analyst for GGICO.

'However, ratings are constrained by geographic concentration as well as a meaningful exposure to the Dubai real estate sector, which the company however plans to reduce over time', Lotter adds.

GGICO's ratings benefit from its conservative financial policy, as outlined by a target debt to equity ratio of 1.5x, which has been maintained even in recent years when the company was undertaking major investments.

Ratings also benefit from fairly strong operational diversification, although it remains exposed to the Dubai real estate sector.

However, Moody's takes comfort from the fact that GGICO has adopted a conservative risk management policy, by which it shares part of the financial burden of its developments with other co-investors and pre-sells parts of its developments, thus allowing internally generated cash flows to partially finance its projects.

Ratings also incorporate the solid track record and the competitive position that the company enjoys in other core activities, namely the lubricant oil manufacturing and insurance businesses.

Ratings also benefit from implied shareholder support from the company's majority shareholder, the Al Sari family, who have considerable wealth outside of GGICO.

GGICO derives 20% of its revenues from outside the UAE and is therefore primarily exposed to events in the domestic economy.

Ratings are also constrained by the meaningful exposure to the UAE real estate market, and particularly Dubai, where the company is developing most of its residential and commercial projects and owns several buildings for rental purposes.

Over time, the company is planning to reduce its real estate exposure by building up additional manufacturing based businesses, which will have positive implications on its ratings over the longer term.

The expansion strategy also brings some uncertainty, although it could positively impact the company's overall business risk profile by improving geographic and operational diversification, if pursued within management's traditionally conservative financial targets.

The company's financial profile has historically been strong, and ratings assume that management will continue to run the company's finances in a prudent manner and in line with certain financial parameters as GGICO expands outside the UAE and into other industries.

GGICO's liquidity profile is adequate, though demonstrating just over Dhs1bn in short term maturities, which will need to be refinanced in
2008.

The company plans to address most of this via a capital markets transaction, but also benefits from unused committed credit lines and
cash which would cover most of the amount.

Furthermore, GGICO has built up a sizeable investment portfolio with a year-end 2007 value of Dhs2.3bn. Most of the portfolio is invested in liquid UAE and GCC shares and, despite exposing the company to market risk, does offer a significant source for extra liquidity, should this be required.

GGICO's rating outlook is stable and Moody's assumes that GGICO will maintain its traditionally conservative financial policy in executing its expansion plan.

Potential upward pressures could result from a significant improvement of the company's current diversification profile that would lead to (i) a significant reduction of its exposure to the UAE
real estate sector (ii) a higher involvement in uncorrelated and possibly lower risk businesses and (iii) greater geographical diversification.

GGICO's Baa2 rating is well positioned, provided that EBIT covers interest expense at least 4 times, debt to EBITDA is kept below 3.5 times, retained cash flow to debt does not fall below the low teens and debt to book capitalization remains below 50%.