KINV
KINV
KINV
Moody's Investors Service said it has downgraded Kuwait Investment Company's issuer rating to Ba2 from Baa3.
The downgrade reflects the Kuwait Investment Authority's (KIA) public announcement that it plans to divest its stake in KIC. The announcement has prompted Moody's to moderate its parental support assumptions, leading to a reduction in rating uplift from KIC's b3 baseline credit assessment (BCA) to four notches from six.
“In light of the proposed divestment the review for further downgrade will focus on: (1) a forward-looking assessment of the KIA's willingness to provide capital and liquidity support to KIC in the event of any distress, which may result in the full removal of the remaining four notches of support imputed in KIC's assigned issuer rating; (2) the KIA's future (if any) involvement in KIC as an investor and (3) the potential impact on the company's b3 BCA given its significant dependence on KIA for both funding and business generation. This information will be incorporated in subsequent rating actions, which may result in multiple notch reductions in the assigned issuer rating.
“The downgrade of KIC's issuer rating to Ba2 follows the announcement by the Kuwaiti government's (Aa2 stable) sovereign wealth fund (KIA), that it intends to sell its 76% stake in KIC by the end of H1 2015. Although Moody's currently continues to view the probability of parental support for KIC as high based on the ongoing implicit support that KIA provides through both business generation and funding the divestment signals a reduced importance of KIC to KIA and explicitly reduces the economic and policy incentives for the KIA to provide financial support in case of need. The rating agency's moderation of its support assumptions has resulted in a reduction of rating uplift from the standalone BCA to four notches, compared to six notches previously.
“During the review period Moody's will focus on a forward-lookingassessment of KIA's willingness to provide capital or liquidity support in light of their divestment strategy and will assess the KIA's future involvement in KIC as a strategic or minority investor, also in light of their current high level of board representation where they hold six out of eight positions. A review of these factors may result in the removal of some or all of the remaining four notches of support imputed for KIC, given its lack of systemic importance (KIC does not take retail deposits) leading to potential multiple notch reductions in the assigned issuer rating.
“The review will also consider the potential impact on the company's b3 BCA given the significant linkages in terms of (1) funding, through deposits by KIA that historically have accounted for a significant amount of KIC's funding base 35% of total funding at end-2013; and (2) business generation, with the bulk of KIC's KWD 2.2 billion assets under management (including custody accounts) currently sourced from the KIA management fees and commissions from related parties accounted for 40% of total in 2013.”
The downgrade reflects the Kuwait Investment Authority's (KIA) public announcement that it plans to divest its stake in KIC. The announcement has prompted Moody's to moderate its parental support assumptions, leading to a reduction in rating uplift from KIC's b3 baseline credit assessment (BCA) to four notches from six.
“In light of the proposed divestment the review for further downgrade will focus on: (1) a forward-looking assessment of the KIA's willingness to provide capital and liquidity support to KIC in the event of any distress, which may result in the full removal of the remaining four notches of support imputed in KIC's assigned issuer rating; (2) the KIA's future (if any) involvement in KIC as an investor and (3) the potential impact on the company's b3 BCA given its significant dependence on KIA for both funding and business generation. This information will be incorporated in subsequent rating actions, which may result in multiple notch reductions in the assigned issuer rating.
“The downgrade of KIC's issuer rating to Ba2 follows the announcement by the Kuwaiti government's (Aa2 stable) sovereign wealth fund (KIA), that it intends to sell its 76% stake in KIC by the end of H1 2015. Although Moody's currently continues to view the probability of parental support for KIC as high based on the ongoing implicit support that KIA provides through both business generation and funding the divestment signals a reduced importance of KIC to KIA and explicitly reduces the economic and policy incentives for the KIA to provide financial support in case of need. The rating agency's moderation of its support assumptions has resulted in a reduction of rating uplift from the standalone BCA to four notches, compared to six notches previously.
“During the review period Moody's will focus on a forward-lookingassessment of KIA's willingness to provide capital or liquidity support in light of their divestment strategy and will assess the KIA's future involvement in KIC as a strategic or minority investor, also in light of their current high level of board representation where they hold six out of eight positions. A review of these factors may result in the removal of some or all of the remaining four notches of support imputed for KIC, given its lack of systemic importance (KIC does not take retail deposits) leading to potential multiple notch reductions in the assigned issuer rating.
“The review will also consider the potential impact on the company's b3 BCA given the significant linkages in terms of (1) funding, through deposits by KIA that historically have accounted for a significant amount of KIC's funding base 35% of total funding at end-2013; and (2) business generation, with the bulk of KIC's KWD 2.2 billion assets under management (including custody accounts) currently sourced from the KIA management fees and commissions from related parties accounted for 40% of total in 2013.”
Source:
Mubasher
