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Moody's downgrades NIG outlook

Dubai, January 29, 2009

Moody's Investors Service has downgraded the long-term issuer rating of National Industries Group Holding (NIG) and the rating on the $475 million sukuk issued by NIG Sukuk Limited to BA2 from BAA3.

A Kuwait-based publicly listed investment holding company, NIG's outlook was changed to negative.

'Moody's concluded that steps already initiated and still contemplated or pending will not be sufficient to lower market value leverage to levels of 35 per cent and below, which we would expect for a BAA rated investment holding company,' said Martin Kohlhase, a Moody's assistant vice president and lead analyst for NIG based at the DIFC/Dubai.

He elaborated that 'NIG's estimated market value leverage metric for the fiscal year ended was around 50 per cent and Moody's anticipates that through likely near-term actions currently at the disposal of management, primarily asset sales, this metric could be lowered to levels of around 45 per cent at best, commensurate with the Ba2 rating level.'

Cash coverage - dividend income to net interest expense - at below two times is weak and Moody's expects any near term improvement to this metric to be challenging given the uncertainty and lack of visibility of dividend income in times of weaker operating performance.

This is unlikely to be fully offset by lower finance expenses over the near term despite the current low-interest rate environment.

Moody's said that NIG has historically relied on asset disposals to improve the availability of cash, 'which in our view is more difficult to maintain after stock market indices have fallen globally and may not prove to be a sufficiently sustainable source of cash to be relied upon at the higher rating category.'

In addition, the high portion of unlisted investments in the portfolio could result in further volatility in asset valuations in the future which has also been factored into the BA2 rating.

Near-term investment and asset disposals proceeds could amount to nearly KD120 million ($406 million) while additional intermediate measures, with a lower probability of being executed, could add up to a total of almost KD150 million ($508 million).

This does not consider any improvements in the value of the underlying portfolio as Moody's believes that capital markets remain volatile and will unlikely advance by such magnitude over the next quarters that it could have a sufficiently material impact on NIG's portfolio value given the required targets, the Moody's statement said.

Moody's has also not factored in direct government support that could have a positive impact on NIG's credit profile.

The negative outlook takes into account that NIG continues to have a debt maturity profile that is geared towards the short-term and does not include a high proportion of legally committed facilities, which is partially mitigated by NIG's solid bank relationships and the long track record of successful extensions.

The outlook could be stabilized if NIG lowers market value leverage to sustainable levels of between 35 and 45 per cent by applying disposal proceeds to a reduction of debt and continuously strengthens the cash coverage metric to levels of around 2.5 times, it added.-TradeArabia News Service




Tags: Moodys | downgrade | National Industries Group Holding |

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