Fitch places Gulf General Investment Company on RWN

The RWN reflects Fitch's concerns over GGICO's liquidity position. GGICO is exposed to the local stock market (GGICO's security portfolio is considered a major source of liquidity for the company), has a high level of short-term debt and is also exposed to the slowdown in Dubai's residential property market. Dubai's stock market has fallen by 47% from early October to date, and by 69% for the year-to-date.


Like many regional peers, GGICO operates with high levels of short-term debt and it has regularly accessed the debt and equity markets for fresh capital. As of end-September 2008, the company had 61% of its total gross debt (including perpetual debt) maturing before 30 September 2009. Fitch notes that GGICO has an asset rich balance sheet, with cash of Dhs382m, over Dhs1.5bn of finished property, and Dhs2.95bn of securities investments relative to gross debt of Dhs3.8bn as of Q308. These assets could be sold in times of stress to service debt obligations.

Pressure may also rise on GGICO if its management fails to rein in residential activity at a time when growth in Dubai's residential market is slowing. Fitch takes comfort from GGICO's conservative policy of not starting to sell residential properties until it has a contractor in place, and construction material prices and the construction timetable are known or locked in. As of Q308, GGICO's committed development program is almost 90% pre-sold and proceeds from these sales should cover its construction costs, thus its remaining units can be sold 'as and when' near to completion dates. Nevertheless material deterioration of buyer's ability to pay may have an impact on GGICO's cash flow and liquidity.

GGICO has a diversified portfolio of operations, weighted towards residential development (30.9% of total assets and 43% of operating profits as of Q3 2008). GGICO's portfolio also includes securities trading (24.9% of total assets and 24% of operating profits as of Q3 2008) and controlling stakes in leisure, insurance, oil lubricants and wood prefab subsidiaries. However, the majority of GGICO's activities are focused in the United Arab Emirates, particularly in Dubai, which leads to geographic concentration and exposes GGICO to a possible slowdown in the region's growth.

Fitch expects GGICO's operational diversification, conservative financial profile, conservative risk management approach and the use of strict investment criteria within its securities trading division to be positive factors in supporting its 'BBB' rating. However, Fitch is concerned about the impact of the stock market on GGICO's security portfolio and credit profile, hence the placing of ratings on RWN.

Fitch's ongoing analysis of GGICO's ratings will continue to focus closely on the company's ability to generate cash flow and retain adequate liquidity against the backdrop of current and projected market conditions. Fitch plans to resolve the RWN based on its assessment of GGICO's liquidity and ability to comply with covenants on its main syndicated loan facility. Resolution is expected to occur within the next three-to-four months.