(Sukuk.net Press) Standard & Poor's Ratings Services said today it revised its outlook on Kuwait-based operating holding company, Kuwait Projects Co. (Holding) K.S.C. (KIPCO), to negative from stable. The 'BBB+' long-term and 'A-2' short-term corporate credit ratings were affirmed.

"The rating actions reflect our assessment of a gradual weakening of KIPCO's investment portfolio profile, which could put pressure on its credit profile," said Standard & Poor's credit analyst Andreas Kindahl.

This weakening mainly stems from the ongoing deterioration of investment quality of portions of KIPCO's portfolio, due in part to current economic conditions and reduced portfolio liquidity and diversification in recent years. However, KIPCO has a strong financial profile, in our view, because it maintains a loan-to-value ratio of less than 25% and has no debt maturities until November 2010.

The ratings on KIPCO primarily reflect modest gearing at parent company level, financial flexibility offered by the group's portfolio of partly listed equity investments, and expectations of shareholder support. They are constrained by KIPCO's relatively small number of holdings with concentrations in Gulf Cooperation Council countries and the Kuwaiti financial sector, weakening asset quality in the portfolio as a result of the challenging economic environment, as well as reduced portfolio liquidity because of the company's focus on controlling stakes in its holdings.

KIPCO is majority-owned by Al Futtooh Holding Co. K.S.C. (Closed) (AFI), which is connected to Kuwait's ruling Al Sabah family and has been supportive of KIPCO in the past. The rating incorporates a one-notch uplift from the group's stand-alone credit profile in accordance with our revised government-related entities criteria. We consider KIPCO's role to be of "limited importance" for the government and its link to the government to be "strong". We consider the likelihood of timely and sufficient extraordinary support from the government to be "moderate".

KIPCO has controlling stakes in:

- Kuwaiti retail and commercial bank (BBB+/Watch Neg/A-2), with 54.7% effective ownership;

- Composite insurer (BBB+/Stable/--), 68.5%;

- Investment bank United Gulf Bank B.S.C. (UGB; not rated), 82.8%; and

- Showtime (not rated), 75.3%.

As a majority shareholder, KIPCO has better control over dividend flows from its core holdings. Moreover, some of its investments control listed and highly diverse investment portfolios, adding to the liquidity and diversity of the consolidated group. Still, the risk profile of some of KIPCO's investments is relatively high, in particular, that of UGB and Showtime, which represent more than one-half of the parent company's investment portfolio. These two investments weigh on our ratings assessment of KIPCO. Consequently, our ratings assume that KIPCO will limit further growth of subsidiary level debt, even if there is no recourse to KIPCO, and restrict intragroup transactions and exposure in line with rated peers.

"The outlook is negative because of our view of KIPCO's deteriorating portfolio characteristics," said Mr. Kindahl. "In particular, this pertains to KIPCO's reduced portfolio liquidity and diversity, as well as our view of weakened overall portfolio quality. The latter refers predominantly to the underlying credit quality of two of KIPCO's main subsidiaries, UGB and Showtime, whose credit quality we assess as weak."

About Standard & Poor’s in the Gulf Cooperation Council
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulf’s credit risk management, wealth management, and data and information markets. Since entering the region in the early 1990’s, Standard & Poor's has become the largest provider of credit ratings in the G.C.C, rating 114 issuers. In equity markets, Shariah-compliant versions of Standard & Poor’s global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poor’s Fund Services launched a qualitative fund management rating service for regional asset managers in 2007.
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