Fitch places Gulf Investment Corporation on rating watch negative

The Individual rating has been affirmed at 'D'.

The RWN reflects Fitch's concerns that the willingness to provide ongoing support to GIC by the shareholders (in case of future need), may have weakened given the long delays in some of the shareholders making payments towards GIC's $1.1bn capital increase approved in December 2008.

Fitch will resolve the RWN following a full review of GIC in the coming weeks, especially the level of support the agency factors into GIC's ratings. Following its review the agency would not expect the Support Rating to be revised to below '2' and as a consequence the IDR will not be below the 'BBB' range.

"While Fitch is confident that all the shareholders will eventually meet the capital call, the delays in making the payments, raises questions whether there is less appetite to support GIC in the future. As GIC's ratings are support-driven, this uncertainty exerts significant negative pressure on the company's ratings."

says Mahin Dissanayake, Associate Director in Fitch's Financial Institutions team in Dubai.

GIC was forced to raise capital after seeing substantial market-related losses, write-downs and impairment provisions since the onset of the global credit crisis. Fitch downgraded GIC's Individual Rating to 'D' (from 'C/D') in December 2008 as the agency expected the company's FY08 results to be severely impacted by its high exposure to market risk. The company subsequently reported a $996m loss for FY08.

To date, GIC has received $753m of new capital from its shareholders. Although still short of the target, the capital injection has allowed the company to maintain capitalization at adequate levels and to avert downward pressure on the Individual Rating. Its Basel II tier 1 and total capital ratios were 12.9% at end-April 09 compared to 8.7% at end-2008.

Fitch also questions the viability of GIC's business model going forward. If GIC's private equity-focused strategy fails to turn around the company's business, then there could be further downgrades in its Individual Rating. Fitch stresses that GIC private equity investments remain illiquid and continue to generate weak recurring earnings, meaning that the company's earnings are likely to remain volatile in FY09.

GIC is in the process of de-leveraging its balance sheet though asset sales aimed at keeping leverage at 3 to 4 times its capital base. Fitch has no major concerns on GIC's liquidity position. GIC saw large reductions of interbank deposits in 2008 which were sufficiently replaced by significant deposits from all the shareholders - which is an important support consideration.

GIC was established in Kuwait in 1983 to promote private enterprise and economic growth in the Gulf Cooperation Council (GCC - which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), although in recent years it has been active in global markets. GIC is equally owned by the GCC member states.