Moody's extends review on United Gulf Bank's ratings (Bahrain)

Moody's initiated the rating review in May 2008, following the announcement by UGB that it had agreed to sell four commercial banking subsidiaries and associates to Kuwait's Burgan Bank (rated A1/C- (on review)Prime-1) for $725.0m.

Since that time, UGB has completed the sale of its stake in Jordan Kuwait Bank for $450m, while the divestment of its controlling stakes in Algeria Gulf Bank, Bank of Baghdad and Tunis International Bank will be concluded once all regulatory approvals have been obtained. UGB also announced, in July, that it would invest the total proceeds from these sales in new shares to be issued by Burgan Bank. That transaction, which will give UGB a stake of up to 20% in Burgan Bank, will be concluded once the Emiri decree governing the establishment of the Kuwaiti bank is amended. UGB and Burgan Bank are both majority-owned by Kuwait's KIPCO Group (rated Baa1/Prime-2), with respective stakes of 88.1% and 52%.

Moody's is extending the rating review pending the conclusion of these transactions. During the review period, Moody's will focus on the full implications of these transactions on the bank's business model, earning profile and balance sheet structure.

Moody's added that it will also take into account the more difficult investment climate in the Gulf Cooperation Council states and also globally and the impact that this will have on the bank's franchise as a proprietary investment and asset management company. In Moody's view, UGB's strengthened capital position, as a result of the significant capital gains from these transactions (including $280m in realised capital gains on the sale of Jordan Kuwait Bank), is likely to counterbalance the challenges from the more difficult investment climate. Therefore, provided all transactions go ahead as planned, the most likely outcome of the review would be a confirmation of the BFSR at D+.

Moody's review of UGB's Baa3/Prime-3 deposit ratings will additionally take into account the possible implications of the transaction with regard to the parental support assumptions for the bank. Currently, these ratings incorporate an uplift reflecting a moderate likelihood of support from its shareholders, to be distributed through Burgan Bank.

United Gulf Bank is headquartered in Manama, Bahrain, and had total assets of $3.14bn at the end of June 2008.