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Rating Action:

Moody's confirms Gulf Investment Corporation's Baa2/P-2 ratings; downgrades BFSR to D-

24 Nov 2009

Ratings carry a negative outlook

Limassol, November 24, 2009 -- Moody's Investors Service today confirmed the Baa2 long-term deposit and senior unsecured debt ratings, and Prime-2 short-term deposit rating of Gulf Investment Corporation (GIC). At the same time, Moody's downgraded GIC's bank financial strength rating (BFSR) to D- from D. The D- rating now maps to a Baseline Credit Assessment (BCA) of 13, down from 12 (on a scale of 1 to 21, where 1 reflects the lowest level of risk). The BCA forms one of the company's key rating inputs under Moody's methodology for government-related issuers (GRIs). The outlook on all ratings is negative.

This rating action concludes Moody's rating review initiated earlier this year in view of turbulent capital market conditions and the potential impact on GIC's solvency and franchise.

GIC's BCA of 13 reflects the company's narrow scope of operations, its lack of franchise, the potentially elevated risk of its operations and the multiple setbacks to its performance suffered since the beginning of the sub-prime crisis in mid-2007 and throughout the global financial crisis in 2008 (as a consequence of the nature of its operations and its possibly ill-timed entry into asset classes that suffered during the past two years). It also reflects the fact that, despite its recapitalisation and the improvement in market conditions, GIC's performance in 2009 remains poor, and the company continues to be exposed to potential market weakness.

More positively, the BFSR also reflects the company's high liquidity, very good operating efficiencies and much improved capitalisation, with its leverage declining as at end-H1 2009 to more realistic levels of 5.3 times compared to 10.9 times at YE2008 (the company voluntarily calculates its Basel II CAR at 16.9% as at end-H1 2009, up from 8.7% at YE2008). Management reports that capitalisation and leverage ratios continued to improve in Q3 2009.

In accordance with Moody's rating methodology for GRIs, GIC's Baa2/Prime-2 long- and short-term deposit ratings and its Baa2 senior unsecured debt rating reflect the following inputs: (i) GIC's BCA of 13; (ii) the Aa2 local currency bond rating (negative outlook) of the Kuwaiti government; (iii) medium dependence; and (iv) a very high probability of support.

GIC's ratings currently incorporate Moody's assessment of the probability of support from Kuwait, where the company is established and which, in case of need, would be its first call for timely support (as it is regulated by the Kuwaiti authorities). Nevertheless, the rating agency believes that Kuwaiti authorities' willingness to extend support to GIC is not limitless and would be influenced by the willingness of other GCC countries to match Kuwaiti efforts. Although delays by some countries in paying up their share of the USD1.1 billion authorised but unsubscribed capital which was called in by the company in October 2008 gave rise to concerns that willingness to support GIC was tempered, the subscription process is almost completed. Moody's continues to view the probability of systemic support for GIC as very high as it believes that the reputation risks of failing to provide support and the connotations that this could have in terms of pan-GCC cooperation outweigh the aforementioned concerns.

The negative outlook on GIC's BFSR reflects the fact that the company is currently in the process of restructuring and re-evaluating its direction (and the narrow scope of its operations). Consequently, the negative outlook will likely be maintained until such time as the company can re-establish its capacity to generate returns commensurate to the level of risk undertaken and sufficiently diversify its revenue streams. The negative outlook on the company's Baa2 deposit and unsecured senior debt rating reflects the outlook on the BFSR as well as the negative outlook on Kuwait's local currency bond rating.

Moody's previous rating action on GIC was on 16 February 2009, when its BCA was lowered to 12 from 11, its deposit ratings were downgraded to Baa2/Prime-2 from A3/Prime-1, and its senior unsecured debt rating was lowered to Baa2 from A3.

The principal methodologies used in rating GIC are (i) "Application of Joint Default Analysis to Government-Related Issuers" (April 2005); and (ii) "Revised Methodology for Government-Related Non-Bank Financial Institutions" (August 2006), which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating the company can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Kuwait City, Gulf Investment Corporation reported total assets of USD5.64 billion as of June 2009.

Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Limassol
Stathis A. Kyriakides, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms Gulf Investment Corporation's Baa2/P-2 ratings; downgrades BFSR to D-
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