RPT-Fitch affirms Bahrain's Mumtalakat Holding Co at 'BBB'; outlook stable

Wed Jan 15, 2014 5:15am EST

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Jan 15 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Bahrain Mumtalakat Holding Company's (Mumtalakat) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. Fitch has also affirmed Mumtalakat's Short-Term IDR at 'F3'. The Outlook on the Long-Term IDR is Stable. Mumtalakat's USD750m 5% notes, due 30 June 2015, and MYR300M Sukuk, due 3 October 2017, have been also affirmed at 'BBB'.

Mumtalakat's ratings are aligned with the Kingdom of Bahrain's (BBB/Stable/F3), reflecting a strong relationship between the company and the state. Mumtalakat is a holding company of assets in Bahrain that range from airline, telecoms flour and aliminium mills, to banking services, among others.

KEY RATING DRIVERS

State Support

The ratings factor in implicit state support for Mumtalakat, although this is subject to change given political uncertainty in Bahrain. Mumtalakat is 100%-owned by the Bahrain state and the government's investment arm. It was established in June 2006 as an independent holding company for the government's non-oil and gas assets. The viability of Mumtalakat's business model is dependent on continued strong linkages with the sovereign, its strategic importance as a holding company for the government's non-oil and gas assets, and its low level of leverage relative to Bahrain's financial capacity.

State Development Strategy

Mumtalakat is an active investor in diverse industry sectors spanning over 35 commercial enterprises, nationally and internationally.

State Funding

Mumtalakat has received government shares since its inception in state-owned enterprises, as well as funds and free land to manage and operate its subsidiaries. Although government support falls short of an explicit debt guarantee, Fitch considers Mumtalakat's high profile and strategic role to mean that support would be provided, if needed.

Gulf Air Losses

In 2012, the government transferred BHD185m to Gulf Air through Mumtalakat to support the airline's restructuring plan. Mumtalakat management expects Gulf Air to continue making losses, though the amount of such losses is expected to be significantly smaller from levels recorded in 2012 and will continue to be covered by the government.. Our analysis therefore assumes that Gulf Air will continue receiving direct capital injections from the government, as Gulf Air is considered essential for Bahrain by the government. Since end-2013, Mumtalakat has ceased channelling cash injections to Gulf Air; the losses are directly expensed and absorbed by the government.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to positive or negative rating actions include:

-A change to Bahrain's sovereign ratings, in the form of an upgrade or downgrade, would probably lead to a similar change in Mumtalakat's ratings

-Any adverse change in the implied support of, commitment from, and ownership by the Bahrain government

-Substantial new debt on behalf of Mumtalakat subsidiaries or further guarantee of subsidiaries' debt

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