November 26, 2013 / 6:26 PM / 4 years ago

Fitch Rates Falcon Group Holdings Cayman 'B'; Outlook Stable

(The following statement was released by the rating agency) LONDON, November 26 (Fitch) Fitch Ratings has assigned Falcon Group Holdings (Cayman) Ltd. (Falcon/the group) a Long-term Issuer Default Rating (IDR) of 'B' and a Short-term IDR of 'B'. The Outlook on the Long-term IDR is Stable. KEY RATING DRIVERS - IDRS Falcon's IDRs reflect its niche franchise in its core Middle East and Asian markets, the low risk nature of its trade finance business and low leverage, supported by strong internal capital generation, which provides a buffer for potential debt issuance. Falcon has also demonstrated a strong track record of performance through the cycle including a solid profit generation capability on rising turnover with limited asset quality deterioration. However, Fitch considers that the financial profile of the group could be altered fairly quickly because of the lack of strong lines of defence built within its business model. The main constraints are the significant related party transactions with the shareholder as well as the key role and importance of the chairman/sole shareholder to the business, which weakens the position of potential debt holders within the corporate structure. Corporate governance is therefore viewed as a rating constraint. Fitch considers the group as a niche player in the trade finance business, without a clear competitive advantage and with limited pricing power in the global market. Barriers to entry within the trade finance business are low. Asset quality of the core business is considered strong, although there have been past instances of opportunistic investment strategies that could have put the group at risk from potential high losses. While internal compliance and risk management functions have been strengthened, Fitch believes that efforts to address these issues are still a work in progress. Liquidity is supported by strong cash and equivalent balances, and the structure of the balance sheet is quite flexible due to the short-term nature of transactions in which it engages. Liquidity needs are limited due to the self-funded and matched nature of transactions. RATING SENSITIVITIES - IDRS Negative pressure on the ratings could arise from a worsening risk profile, resulting from, for example, rapid expansion outside its core competences or a heightened risk appetite. Although there is currently some headroom, the ratings would also be negatively affected by significantly increased leverage resulting from higher dividend payout ratios or sustained falls in profitability. The ratings could also be sensitive to increased operational risk resulting from a rapid, uncontrolled expansion outside the Group's core geographical areas of expertise. The ratings could be positively impacted by improved risk management practices including a demonstrated track record of adhering to more conservative internal limits and investment policies; improved corporate governance policies, practices and board level committees and limiting related-party transactions. Other positive rating drivers include an improved franchise and pricing power, and evidence of a defendable market position. Falcon Group was set up in 1994 as a finance provider for mid-sized corporate clients in the GCC/Middle East seeking alternative short-term trade finance. Falcon Group Holdings (Cayman) Limited was established in 2013 in the Cayman Islands to act as the new holding company for the group. Falcon's business model is focused on trade finance with most of its business originated from the Middle East and Asia. It provides alternative finance for its customers and hedges its trade finance exposure. The group is unregulated and is privately owned by its founder Kamel Alzarka who acts as its chairman and is an executive director of the company. Contact: Primary Analyst Mahin Dissanayake Director +44 (0)20 3530 1618 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Alan Milne Analyst +44 (0)20 3530 1491 Committee Chairperson Erwin Van Lumich Managing Director +34 93 323 8403 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available on Applicable criteria, Global Financial Institutions Rating Criteria (August 2012), Evaluating Corporate Governance (December 2012), Finance and Leasing Companies Criteria (11 December 2012) are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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