OREANDA-NEWS. Fitch Ratings has affirmed Gulf Investment Corporation's (GIC) Long-Term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook and Short-Term IDR at 'F1'. At the same time, the agency has affirmed GIC's Viability Rating (VR) at 'bb' and Support Rating at '1'.

KEY RATING DRIVERS

IDRS and SUPPORT RATING

The IDRs and Support Rating reflect an extremely high willingness and ability of the sovereign shareholders to provide support to GIC, a development investment company, if required. GIC's shareholders are the six countries of the Gulf Corporation Council (GCC), which hold equal shares.

Our assessment of the GCC's ability to support takes into account the creditworthiness of the sovereign shareholders: Kuwait (AA/Stable), Saudi Arabia (AA-/Negative), Qatar (AA/Stable), Bahrain (BBB-/Negative), UAE and Oman, and GIC's modest size relative to its shareholders' financial strength.

In Fitch's view the ability of the shareholders' to support GIC remains strong despite their weaker financial flexibility in light of low oil prices. The propensity to support reflects GIC's special legal status in GCC countries, its mandate as a specialist developmental investor and the track record of support from shareholders. It also factors in GIC's fragmented ownership, which could affect the timeliness of support. The 'F1' Short-Term IDR factors in a good record of liquidity support from GIC's shareholders as well as our view that the propensity to support is more certain in the near term.

Given GIC's business model and considerable exposure to market risk, our assessment of GIC's company profile and risk appetite have high influences on the institution's VR. GIC is well-capitalised, which mitigates its market risk exposure to some extent. Its Basel III capital adequacy ratios (total capital adequacy ratio of 45.9% and leverage ratio of 47% at end-2015) are strong but appropriate given its exposure to less liquid private equity investments held in the principal investments (PI) portfolio and business model risk.

Profitability weakened in 2015 mainly due to losses in one of its associates (ie part of the PI portfolio). Fitch believes that GIC's earnings and profitability are likely to be volatile given the institution's sensitivity to investment performance and market volatility under challenging operating conditions.

Funding and liquidity is a rating strength as GIC continues to benefit from large deposits from its shareholders and related entities. As these deposits are typically short-term and can fluctuate, GIC has also raised wholesale medium-term funding to better match its longer-term PI portfolio. Additionally, GIC's global markets (GM) business, which comprises a portfolio of highly rated and liquid debt securities, equities and funds, serves as a liquidity pool if required.

The rating also reflects GIC's strong management team and more cautious strategy, particularly in GM, since its past asset quality problems due to the global financial crisis.