Fitch Ratings has affirmed Bahrain Mumtalakat Holding Company’s (Mumtalakat) long-term issuer default rating (IDR) and senior unsecured rating at ‘BBB’. Fitch also affirmed Mumtalakat’s short-term IDR at ‘F3’. The uutlook on the long-term IDR is stable. Mumtalakat’s $750million 5% notes, due 30 June 2015, have been also affirmed at ‘BBB’.
“The agency continues to apply its parent and subsidiary rating linkage methodology in rating Mumtalakat as it believes that a strong relationship exists between the company and the Kingdom of Bahrain (‘BBB’/Stable/’F3’), reflecting the strong relationship between the two,” Fitch in a statement said.
“Mumtalakat is 100%-owned by the Government of Bahrain and is the government investment arm, it was established as an independent holding company for the Government of Bahrain’s non-oil and gas assets as an active investor in diverse business and industry sectors in over 35 commercial enterprises, nationally and internationally,” Bashar Al Natoor, Director in Fitch’s EMEA Corporates team in Dubai, said.
“However, ratings that factor in implicit state support will always be subject to the very real event risk of changes in political approach by the sovereign,” Al Natoor, added.
“Bahrain is in the process of diversifying its economy away from the hydrocarbon sector towards the production of high value-added goods and services and Mumtalakat was established by the government to help drive this transformation. In addition, Mumtalakat’s Board of Directors is formed exclusively of prominent Bahrain government officials and businessmen, all of whom represent the interests of the shareholder, which is the government of Bahrain. This is demonstrated by the fact that The Crown Prince, in his capacity as Chairman of The Economic Development Board of Bahrain, approves board membership and its recently appointed chairman is the Deputy Prime Minister Shaikh Khalid bin Abdulla Al Khalifa. The board also includes the Minister of Finance, who was the chairman of Mumtalakat until October 2011 Shaikh Ahmed bin Mohammed Al-Khalifa.
“Mumtalakat has been receiving government equity shares in state-owned enterprises, funds and free land, to manage and operate its subsidiaries. Although government support falls short of an explicit debt guarantee, Fitch considers that Mumtalakat’s high profile and strategic role mean that support would be provided if required,” Fitch added.
“The viability of Mumtalakat’s business model is dependent on continued strong linkages with the sovereign and its strategic importance in being the holding company for the government’s non-oil and gas assets and, at the same time, not being highly leveraged relative to Bahrain’s long-term ‘BBB’ rating,” it added.
Fitch noted that Gulf Air’s historical operating losses were a major financial burden on Mumtalakat, given the latter’s material liquidity assistance thus far to the airline of approximately $450million in 2008 and $525million in 2009. Fitch continues to expect that the capital injection and any additional material financial support to Gulf Air will be assumed directly by the government via Mumtalakat. In 2010, the government funded Gulf Air with a capital injection of approximately $1.1billion, which was routed through Mumtalakat. A change in Bahrain’s ratings would result in a change of Mumtalakat’s ratings. Any change in the implied support of, commitment from, and ownership by the Government of Bahrain could have negative rating implications for Mumtalakat. In addition, raising substantial debt on behalf of the subsidiaries or further guaranteeing subsidiaries’ debt by Mumtalakat would be a negative credit factor.
Mumtalakat considers itself to be a long-term investor that aims to continuously focus on portfolio diversification whilst keeping a controlling share in key strategic entities. Mumtalakat’s aim is for all companies to self-finance their operations rather than receive funding directly from the government or Mumtalakat.