Capital Intelligence affirms United Gulf Bank ratings

The outlook for the ratings remains 'Stable'. UGB is nearing the final stages of its balance sheet restructuring, having sold the bulk of its portfolio of commercial bank investments (namely Jordan Kuwait Bank, Algeria Gulf Bank and Bank of Baghdad) to Kuwait-based Burgan Bank, another Kuwait Projects Company Holding (KIPCO) group company.

The restructuring when concluded (expected by 1Q 2010) will allow UGB to focus solely on investment banking and asset management. The disposal proceeds in turn will be deployed to acquire a strategic stake (up to 20%) in Burgan Bank.

The equity investment in the latter will reinforce liquidity; Burgan Bank's shares are listed on the Kuwait Stock Exchange and readily marketable. Notwithstanding the volatility in global financial markets, the quality of UGB's remaining core investments remain sound.

The balance sheet is well capitalised, notwithstanding the decline in the capital adequacy ratio, reflecting a policy of earnings retention to support investment activity. Profitability is expected however to decline significantly in the current year, following a rather exceptional year in 2008, reflecting the lower level of exits combined with the difficult investment market.

While sources of funding are diversified and supported by medium term financing, there remains reliance on interbank deposits (mainly from other Kuwait Projects Company Holding (KIPCO) entities which channel liquidity available on an arms length basis). This source of funds has proven stable in the current operating environment and the liquidity position as such remains satisfactory.

UGB's ownership, through KIPCO, is strong. With total assets of $2.86bn at end March 2009, UGB was established in 1980, and, in 1988, became a subsidiary of KIPCO.

The latter acquired 95% control of UGB and changed the Bank's status to an offshore bank with an investment banking mandate, later realising part of its investment and reducing its holding. As at end-December 2008, 91.72% of UGB's shares were owned by KIPCO.