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29 Sep 2009
Subsidiary also downgraded
Limassol, September 29, 2009 -- Moody's Investors Service has today downgraded the long-term deposit
ratings of Investcorp Bank B.S.C. ("Investcorp")
to Ba2 from Ba1 and its bank financial strength rating (BFSR) to D from
D+. The ratings of its subsidiary, Investcorp S.A.,
were downgraded to the same level. Moody's also assigned
a negative outlook to the bank's ratings.
Today's downgrade concludes Moody's review of Investcorp's
ratings, which was initiated in November 2008. At the time,
Moody's downgraded Investcorp by one notch to Baa3/Prime-3/D+
and subsequently downgraded further to Ba1/Not-Prime/D+ in
May 2009, with the ratings remaining on review for further possible
Moody's explains that this latest rating action is driven by the
continued fragility of Investcorp's financial condition, which
is better reflected by a rating in the middle of the Ba category.
The rating agency arrived at this decision after assessing the combined
effect of the bank's successful placement of USD500.0 million
of preference shares with investors in Q4 2008-09 (fiscal year
ending June 2009) and the USD269 million loss it recorded in H2 2008-09.
The result for the year was a total loss of USD780.6 million.
Moody's believes Investcorp's financial strength is constrained
by modest tangible common equity levels relative to risk assets (assuming
50% equity credit for the preference shares), high private
equity (PE) investment concentrations and a very challenging PE transaction
environment that limits its fee-earning capacity. "Although
current capital ratios would be consistent with a rating at the upper
end of the Ba category under normal operating circumstances, they
are currently vulnerable to further mark-to-market losses
on its investments, without relief from predictable earning streams,"
explains George Chrysaphinis, a Vice President-Senior Analyst
in Moody's Financial Institutions Group. Moody's notes
that transaction-based fee generation seems to be correlated to
asset-based returns, especially during periods of prolonged
or severe capital market disruption.
"The Ba2/Not-Prime/D rating is supported by Investcorp's
sound liquidity profile, where cash resources currently exceed maturing
debt for the next two fiscal years," adds Mr. Chrysaphinis.
"Moody's expects Investcorp to successfully refinance at least
part of its maturing long- and medium-term debt over the
next few months."
Furthermore, Moody's acknowledges that Investcorp is pursuing
appropriate strategies for overcoming the pressure on its financial strength,
although the rating agency recognises that a return to profitability depends
to a large degree on factors outside the bank's control.
More specifically, Moody's notes: (i) the successfully
executed moves to shore up capitalisation through the issue of preference
shares and the de-leveraging of risk assets; (ii) the rationalisation
of operating expenses at a time when earnings visibility is weak;
(iii) the utilisation of committed medium-term revolving facilities
to pay off shorter-term finance and to increase on-balance-sheet
cash balances; (iv) the active performance management of the bank's
PE investments to help the companies survive the difficult economic environment
and to position them for strong profit growth once the economy recovers;
and (v) the bank's enhanced relationship management, which
it uses to defend its valuable customer franchise and, as far as
possible, to secure a rapid pick-up in its investment placement
Moody's says that the negative outlook on the bank's ratings
reflects concerns about the timing and strength of a potential recovery
in the global economy and in investor appetite for alternative investments.
"A recovery in investment portfolio profitability and a return to
robust fee generation are required to cover the bank's substantial
interest and operating expenses. Any material loss in fiscal year
2009-10, or a delay in the recovery of profitability beyond
2010-11, would put further pressure on the bank's financial
condition and franchise value -- and would be likely to
lead to a rating downgrade," cautions Mr. Chrysaphinis.
Alternatively, Moody's points out that the bank's ratings
could potentially be upgraded if there is evidence of: (i) a robust
and sustainable recovery in earnings generation; (ii) increasing
client assets under management; and/or (iii) a material improvement
in capital metrics.
Moody's also reiterates its view that there is little probability
of systemic support for Investcorp as a wholesale bank under the Central
Bank of Bahrain's definition. As such, the rating agency
does not impute any uplift for the bank's deposit ratings as a result
of such support.
The following debt issued by Investcorp Capital Ltd, the bank's
wholly owned subsidiary, was also downgraded to Ba2, with
a negative outlook:
- USD50.0 million 8.08% Guaranteed Global
Medium-Term Notes due 12 July 2032
- EUR538.18 million (USD689.87 million) Guaranteed
Global Medium-Term Note Programme
- USD20.0 million Floating-Rate Guaranteed Global
Medium-Term Notes Series 8 due 7 April 2012
- JPY20 billion (USD203.61 million) 3.5% Guaranteed
Euro Medium-Term Notes Series 002 due 29 March 2030
Moody's last rating action on Investcorp was implemented on 18 May
2009 when the ratings were downgraded to Ba1/Not-Prime/D+
and were kept on review for further possible downgrade.
The principal methodologies used in rating Investcorp Bank B.S.C
was Moody's "Global Securities Industry Methodology",
published in December 2006 and "Bank Financial Strength Ratings:
Global Methodology", published in February 2007 and 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 this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Headquartered in Manama, Bahrain, Investcorp reported total
balance sheet assets of USD3.62 billion at the end of June 2009.
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Investcorp (Bahrain) to Ba2/NP/D; outlook negative
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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